Allowable Deductions PDF

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Allowable Deductions...

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Allowable Deductions (General Provisions) Taxable Income= Assessable Income Less Allowable Deductions (S.4-15) S8-1 is the general provision and states that a taxpayer can claim an allowable deduction if the expenses are incurred in earning assessable income or in carrying on a business and is not private, capital, or domestic. S8-1 has two positive limbs (S.8-1(1)) and four negative limbs (S.8-1(2)). The positive limbs are: (deductible) -

It is incurred in gaining or producing your assessable income. It is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

The negative limbs are: (non-deductible) -

It is a loss or outgoing of a capital nature, It is the loss of outgoing of a private or domestic nature, It is incurred in relation to gaining or producing your exempt income or non-assessable nonexempt income, A provision of this Act prevents you from deducting it.

Private Deductions If an expense is private (related to the person), then it is not an allowable deduction. For example: -

Childcare fees. Travel to and from work Conventional clothes (like suits)

Capital Expenses Expenses related to capital are not deductible. Some deductions can be pro-rata, like if you use your home phone or your mobile for work purposes, then some percentage of your telephone expenses will be an allowable deduction (on a pro-rata basis). Non-deductions -

S.26-5: Fines and Penalties imposed by law. S. 26-20: HELP Repayments S. 26-40: Family expenses (private expenses) S.26-53: Bribes paid S. 32-5 Entertainment Expenses S. 26-54: Imprisonment expenses

Examples of Rental Deductions (investment property) -

Advertising for tenants Bank fees and charges Body corporate fees and charges, strata levies Cleaning and rubbish removal Council and Water Rates Decline in Value (depreciation: Division 40 and Division 43) Garden Maintenance Insurance Land tax Loan interest Repairs and maintenance

Self-education Expenses Under S.82-1, self-education expenses are deductible including -

Course fees Travel expenses Photocopying Stationery Textbooks Depreciation of Assets used

Expenses incurred in keeping up to date are fully deductible. The additional qualification must be related to the taxpayer’s profession, occupation which will increase the taxpayer’s income. Travel expenses for students Direct travel expenses between the first place to education place are deductible and vice versa. S.82A of ITAA36 allows only the excess of expenses of self-education over $250 is deductible. Travel expenses for employees Travel between the two branches of work is deductible. (S.25-100) The travel to and from home and work is non-deductible. Home office expenses For business at home, you can claim -

Rates Interest on mortgage Cleaning Electricity Telephone (pro-rata)

For work at home for convenience, you can only claim -

Electricity Telephone (pro-rata)

Repairs (S25-10) Capital repairs (related to the improvement in the assets) are not deductible. Initial repairs are deductible. Motor vehicle expenses If the taxpayer is business the term motor vehicle is used. If the taxpayer is an employee or investor, the term car expenses is used. Division 28 imposes rules to claims for care expenses (petrol, repairs, insurance, registration, tyres, a decline in value, lease charges, interest on car finance for vehicles which carry less than 9 passengers or 1 tonne load. -

Cents per Kilometer Method Applies a set rate per kilometer to kilometers travelled up to the maximum of 5,000 kms. The claim is at the rate of 72 cents per km. For claiming purpose, a detailed and reasonable estimate of number of businesses kms travelled.

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Logbook Method The maintenance of a logbook for at least 12 continuous weeks in the first year and then every 5 years to determine the business use percentage. Fuel and oil costs require either written evidence or a reasonable estimate based on odometer records. Written evidence for all car expenses is required.

ITAA and Fringe Benefits Tax -

The cost of providing benefits to the employee is deductible for the employer, but any private benefit received by the employee is taxed under Fringe Benefits Tax (FBT).

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