Deductions
Work-related expense
A work-related expense is a cost an employee incurs in earning their income, such as tools, uniforms, travel or training, which may be deductible if the ATO's three rules are met.
Work-related expenses are costs that employees incur because of their job and which they can claim as a deduction in their tax return. They include things such as protective clothing, tools and equipment, work-related travel, self-education connected to the current job, and a portion of costs like phone and internet used for work.
The ATO sets out three golden rules. You must have spent the money yourself and not been reimbursed. The expense must be directly related to earning your income, so a connection to your job is needed. And you must have a record to prove it, usually a receipt or other written evidence. If one of the rules is not met, the claim is generally not allowed.
Common expenses are not always deductible. Normal travel between home and your regular workplace is generally private, and ordinary clothing, even if you wear it only for work, is generally not deductible unless it is a uniform with a registered logo or protective clothing. Conventional clothing, haircuts and make-up are examples of items that are generally not deductible.
If an expense is used partly for work and partly for private purposes, you can only claim the work part. You should work out the portion using a reasonable method, such as a diary of use over a representative period. For many cost categories, there are record requirements and the ATO publishes guides with specific rules for different occupations.
Employers may reimburse or pay for expenses, and these are treated differently. If your employer reimburses you for an expense, you cannot also claim a deduction. In some situations, the reimbursement may be a fringe benefit or allowance. Work out which applies to avoid claiming something that was already paid back to you.
Employees are not entitled to GST credits on work-related purchases, because they are not carrying on an enterprise for those purchases. A deduction is for the full cost including GST, since you cannot claim the credit. Sole traders in business follow different rules. Keep records for five years. This is general information only, so confirm what you can claim with the ATO or a registered tax professional.
Worked example
An electrician employee buys $330 of tools including GST, which she uses only for work, and pays $150 for a protective vest. She was not reimbursed. She claims $330 + $150 = $480 as work-related deductions, and at a 30% marginal rate this saves about $144 in tax. She cannot claim the GST separately as a credit because she is an employee.
Practical tips
- Only claim what you paid yourself, and never claim expenses your employer reimbursed.
- Keep receipts and a diary for mixed-use items such as phones and laptops.
- Check the ATO occupation guides for your job to see which expenses are generally allowed.