How to understand tax return basics

Weaving your way through the thicket of tax obligations is an art as much as a science. But one thing holds true – you have to plan ahead to accrue the most benefits.

DEDUCTIONS

The first thing most people think about at tax time is what deductions they can claim. Certain expenses that relate to your work, investments and, in some cases, education can be offset against your taxable income. If you earn $90,000 and have $6000 of deductions you'll only pay tax on $84,000 of your income, slashing your tax by $2280.

Strict conditions apply to deductions so take care to follow the Australian Taxation Office rules. For example, you can't claim for expenses that your employer has reimbursed you for or will reimburse you for. Nor can you put in for private expenses like buying lunch or travelling to and from your normal workplace each day.

However, you can claim for travel between workplaces if you have two jobs, if your company has more than one office, or if you have meetings to attend at different locations.

Other work-related expenses include uniforms (which are subject to tight definitions), union fees, books and journals that directly relate to your occupation, and the costs of attending seminars and conferences of relevance to your job.

You must be able to substantiate these expenses with receipts if they amount to more than $300. For lesser amounts, you must be able to show how you worked out the claim.

Many deductions apply specifically to certain types of work. Wet weather gear, for instance, can't be claimed when it is used just to keep you dry when it rains but you can claim it if you use it to protect yourself from high pressure hoses or chemicals.

Self-employed people are able to claim for the costs of running their business. If you have a home office, then a portion of the household costs, such as part of the electricity bill, can be included.

Computers, printers, faxes and phones bought and used by the business are all tax deductible. The full value of items that cost less than $1000 can be claimed in one year; items that cost more than this must be depreciated over a number of years. From July 1, 2012, small businesses will be able to write off assets valued at less than $5000 immediately. Other assets will be depreciated at 30 per cent a year.

Education costs are also tax deductible if the course directly relates to your existing employment. Costs for tuition fees and items like stationery and textbooks can all be claimed. But if your aim with the study is to get a new job or extend your skills set to open up a new income-earning activity, you won't be able to use them as a deduction.

The ATO's self-education eligibility tool on its website www.ato.gov.au can help you decide whether a course you are taking will be deductible.