tax deductions on your home office

How to maximise tax deductions on your home office

31 Oct, 2016

You don’t have to be self-employed and working only from home in order to be eligible for tax deductions on your home office.

Many people who are employed by a company do some of their work from home to make better use of their time and create a healthier work-life balance.

If you use your home office for work duties, even if you also use the room for other purposes, you may be able to claim a deduction for the portion of the running costs that can be attributed to work.


Possible tax deductions on your home office

There are various work-related expenses you may be able to claim as tax deductions on your home office. However, only the proportion of each one used for your work is eligible:

  • depreciation of home-office furniture, fittings and equipment such as computers and desks (you can claim for a full deduction of the work-related portion if the equipment costs less than $300)
  • home telephone calls
  • home telephone rental if:
    •  you are on call
    •  you have to phone your employer, clients or students regularly while you are away from your workplace
  • internet access charges
  • printer and printer cartridges
  • stationery
  • the cost of heating, cooling and lighting your home office above the amount you would ordinarily have to pay if you did not work from home
  • the costs of repairs to your home-office furniture and fittings.

You might be surprised at the number of things you can claim for. As you sit at your desk at home, take a look around and identify all the things in the room that you use, even partially, for work purposes.

If you are a paid employee, you probably won’t be able to claim a deduction for occupancy expenses on your home including rent, mortgage interest, and council tax. These are only eligible if your home office is considered a place of business.


How much can I claim?

The ATO offers two options when it comes to making a claim. You can either log all of your actual expenses in a diary and keep receipts and bills as evidence of your costs, or you can claim a flat rate of 45 cents per hour that you use the office for work. This flat rate is intended to cover heating and cooling costs as well as the decline in value of any equipment you use.

Let’s imagine Dave uses his personal computer and home internet connection to grade student assignments. From his work diary he can see that about 35% of the time he spends on his computer is used for work and 65% is personal use.  He can therefore claim 35% of his internet costs and the decline in value of his computer as work-related deductions. He must supply the ATO with his internet bills and proof of purchase of his computer, as well as having his work diary to support the claim.

Whichever option you choose, you’ll still need to complete a diary for a minimum of four weeks to show how much time you spend in your home office for work purposes. This can then be extrapolated over the full year to calculate the amount you can claim for.

For example, Emma records her home office use in a diary for four weeks and finds that she spends an average of four hours working in her home office each weekday. She worked 46 weeks last year, so she could claim for a tax deduction of $414 (20 hours x 46 weeks x 45 cents).


To Recap:

  • You are eligible to claim for tax deductions on your home office if you work from home at least part of the time
  • You may claim a tax deduction on a portion of the running costs and decline in value on equipment you use
  • As a paid employee, you can’t claim for occupancy costs like rent and insurance unless your office is considered a place of business
  • You can claim for actual expenses by calculating the costs apportioned to work-related duties, or you can claim a flat rate of 45 cents per hour spent doing work in your home office
  • You will need to keep a diary for at least four weeks to record the amount of time spent on work vs. personal use


tax deductions for work uniform

Claiming tax deductions for work uniform

28 Oct, 2016

You may be able to claim tax deductions for work uniform in certain cases, as well as any laundry costs you incur on these clothes.


Which clothing items are eligible?

Tax deductions for work uniform are only available if the clothing or footwear is:

  • protective
  • a compulsory uniform to be worn for work
  • a non-compulsory uniform that has been entered on the Register of Approved Occupational Clothing.

You must also be able to show a clear connection between your clothing expenditure and income-earning activities. In addition, you must keep any receipts for the costs you are claiming for. Lack of supporting evidence may result in your claim being rejected.

You usually cannot claim for ‘conventional’ clothing, even if your employer requires you to wear it as part of your uniform.

Clothing is considered ‘conventional’ by the ATO if it is not distinctive or unique, can be worn on any occasion (whether private or social), and is easily available for the public to purchase.

So, a businessman who wears a standard business suit, or a sales assistant who is required to wear a top from a particular fashion label are not eligible for a tax deduction on their clothes. 


Claiming for the cost of laundry

If your clothing is eligible according to the above categories then you may also claim for the cost of washing, drying and ironing it.

If you do your own laundry, you can claim $1 if a load is made up only of eligible clothes or 50 cents if the load contains other laundry items. You will be asked to substantiate your claim if your total laundry costs exceed $150 in a year.

Any other clothing-related costs, including maintenance and repairs, are considered private expenditure so no deduction is available.

Are there other work-related expenses you could be claiming for? Find out in this article.


Tax deductions for work uniform in short:

  • A deduction for uniformed clothing is available for items that are protective or compulsory, unique and distinctive. Non-compulsory uniforms are only deductible if they are entered on the Register of Approved Occupational Clothing
  • ‘Conventional’ clothing that is widely available to the public, such as a business suit, is not eligible for a deduction
  • You must be able to demonstrate a clear link between the clothing and your income-producing activities
  • You may claim for laundry costs on eligible clothing, with an allowance for home laundry of $1 or 50 cents per load, depending on what else is included in the load. No costs for maintenance of the clothing are eligible
  • You must keep all your receipts for clothing purchases and laundry costs to support your claim


work-related travel tax deductions

Claiming work-related travel tax deductions

26 Oct, 2016

If you have to travel as part of your job, or make a trip from one place of business to another, you may be able to claim work-related travel tax deductions. This covers things like car expenses, air, bus, train or taxi fares, and car rental costs. You may also be able to claim for the cost of accommodation and meals if you’re on a business trip away from home.

Things like passport fees and travel insurance are usually considered private costs so are not deductible.


How can I claim for work-related travel tax deductions?

You need to back up your claim with sufficient evidence that the trip was connected to producing income for work, as well as providing written evidence of the expenses you’re claiming for. This means keeping all the receipts and invoices that relate to your trip, but it’s also a good idea to also collect business cards from any contacts you meet and even write a report on your trip when you return to back up your claim.

If you want to claim work-related travel tax deductions for a journey interstate or overseas of more than five days, you’ll need to keep a travel diary in which you record all the details of your trip. This will be used to determine which activities were for income-producing purposes and which were personal, so that tax deductions can be applied accordingly.

For each activity or journey you need to specify:

  •  date and approximate start time
  •  duration
  •  location
  •  nature /purpose

The requirement to keep a travel diary for trips of this length is in addition to keeping evidence of travel expenses.


Mixing business with pleasure

It’s common for people to take advantage of a trip overseas by doing some sightseeing or tacking on some personal holiday time once the business part is over. That’s fine, but the ATO isn’t going to give you any deductions on the cost of a trip up the Eiffel Tower. This is where your travel diary comes in – only costs that relate to your income-producing activities should be included in your claim, so you need to apportion costs where you have used a trip for both work and leisure.

Travel costs to and from an overseas conference, seminar, or other work-related event are only deductible if your main purpose of travel was to attend the event. A two-day event followed by a week-long holiday means you’ll be footing the bill for flights yourself.

Things like accommodation, food, and other incidental costs must be split between work-related and private activities according to what you were doing on the day you incurred the cost.

If your spouse or family join you for all or part of the trip, their expenses are non-deductible, even if you’re working the whole time. If you incur expenses where your portion is not separately identifiable, they must be reasonably apportioned between private and deductible.


Employer-paid expenses

Your employer may cover your travel expenses or give you an allowance for certain costs if you’re away on business. If the allowance that your employer provides is less than the ‘reasonable travel allowance’ published by the ATO, you can claim a deduction for the remaining amount up to the full allowance without needing to provide any additional evidence.

If you want to claim more than the ATO’s ‘reasonable travel allowance’ amount then you must substantiate your whole claim, not just the excess.

Are there other expenses you could be claiming for? Read about deductions for car travel and other work-related expenses.


A summary of claiming travel expenses:

  • Travel expenses incurred in the course of income-producing activities for work are allowed for work-related travel tax deductions
  • For trips over five days you must keep a travel diary detailing each activity linked to an expense
  • Where a trip has an element of leisure, costs must be apportioned between personal and deductible
  • Travel to and from your destination is only deductible if the main purpose of the trip was work-related
  • Expenses for any family members who accompany you are non-deductible
  • If your company offers a travel allowance which is below the ATO’s ‘reasonable travel allowance’ then you may claim the difference without providing additional evidence


tax deductions for work-related car travel

Ways to claim tax deductions for work-related car travel

24 Oct, 2016

Having already ascertained whether you’re eligible to claim tax deductions for work-related car travel, it’s time to look at the different ways you can go about actually making the claim.

There are two different methods you can use to calculate deductions for car expenses:

  •  cents per kilometre method
  •  logbook (12-week) method

Two other methods (the ‘12% of original value’ method and the ‘one-third of actual expenses’ method) used to be available but were discontinued in 2015.


The logbook method

The logbook method, although time-consuming, is probably the best option for you if you use your car regularly for work. It lets you claim can claim a portion of the running costs of the car, including depreciation and interest, based on the percentage of usage that is work-related.

If you decide to use the logbook method, you need to keep a logbook for a continuous 12-week period and record all costs associated with the running of your car including petrol, registration, insurances, servicing, repairs, lease payments, batteries, tyres, and so on.

This may seem like a lot of hard work, but you only need to repeat this process every five years unless you change your job or car, and the deductions can add up to thousands of dollars.

The ATO will check your logbook for authenticity and pick you up on any claims with insufficient supporting evidence. You should enter the following details for each work-related business trip:

  •  the date
  •  kilometres travelled
  •  opening and closing odometer readings
  •  the purpose of the journey.

Aim to fill in your logbook at the end of each journey to make it as accurate as possible.

If you know you’ll be travelling a lot for work, have this included in your job description or employment contract to help back up your claim for tax deductions for work-related car travel.


The cents per kilometre method

This method requires you to make a reasonable estimate of kilometres travelled per year, up to a maximum of 5,000. The ATO will then apply a fixed rate of 66 cents per kilometre to your claim (until recently the rate was tiered based on the size of your engine).

The ATO will want to see evidence that the travel was work-related and you have used reasonable calculations in your estimates. Don’t just guess, because this could land you in trouble further down the line.

Let’s take as an example John, who works as a plumber and regularly has to travel to a supplier to pick up parts. He guesses these journeys add up to about 3,500km per year so he enters this on this tax return.

The ATO calls John’s employer to check this, and finds out that the journey he makes is an 8km round trip, and he does this 2-3 times a week. He also had four week’s holiday during the year.

This means that John should actually have claimed for 1152km of travel (3 days x 8km x 48 weeks). He has wildly overestimated his expenses rather than using a reasonable calculation. Naughty John.


A summary of ways to claim tax deductions for work-related car travel:

  • If you’re eligible to claim deductions on some of your work-related car use, there are two possible methods to use
  • The logbook method is better for people who regularly use their car for work, whereas the cents per kilometre method may be easier for those who only make occasional trips
  • The logbook method requires you to record all of your journeys and related expenses for a continuous 12-week period. You can then claim for some of your expenses in proportion with the amount of car use that was work-related. This must be repeated once every five years, or if you change your car or job
  • With the cents per kilometre method, you must make a reasonable estimate of any journeys that you wish to claim for and provide sufficient evidence that the trip was work-related. You’ll then receive 66 cents per kilometre from the ATO up to a maximum of 5,000 km per year


tax deductions on work-related expenses

Claiming tax deductions on work-related expenses

21 Oct, 2016

We’ve covered the obvious areas of car usage, travel, uniforms, and home office use in separate articles, but there are a whole load of other tax deductions on work-related expenses you might not even realise you may be able to claim for. These include:

  •  briefcases
  •  calculators and personal organisers
  •  diaries and logbooks
  •  first-aid courses
  •  income-protection insurances
  •  interest on money borrowed to finance work-related purchases
  •  mobile phones
  •  overtime meal expenses
  •  postage
  •  professional seminars, courses, conferences and workshops
  •  reference books
  •  stationery
  •  subscriptions
  •  sun protection
  •  technical journals, periodicals and magazines
  •  tools of trade
  •  union fees

These items in themselves may not cost a lot, but when you add together all the small purchases you make for work, they can soon add up.

Any single item costing more than $300 can’t be claimed for in full; you must calculate the decline in value (depreciation) on the item.

Note that purchases made using exempt income cannot be included in your claim. This means that any items purchased via the National Disability Insurance Scheme (NDIS) are not eligible for tax deduction.


Keep a record of everything

You must provide sufficient evidence to substantiate your claim for tax deductions on work-related expenses. This means keeping:

  • receipts or other written evidence of costs, including receipts for any assets for which you can claim a decline in value
  • a diary to record all your small expenses ($10 or less) totalling no more than $200, as well as expenses of any amount that cannot be supported with specific evidence
  • itemised phone accounts showing work-related calls. If you don’t have itemised accounts, use your relevant phone accounts and your work diary to make a reasonable estimate of your call costs

Say, for example, Leon uses his personal mobile phone for work purposes. He pays $49 per month for his phone plan and usually stays within the plan limits. He checks an itemised bill for one month and divides all the calls into ‘work’ and ‘personal’. He finds that 45% of all the calls he made that month were for work, and this seems to be consistent with his bills for other months, so he can apply that percentage to the total monthly payment he makes.

This means that Leon can claim $22.05 ($49 x 0.45) for each full month he works.


Claiming expenses from your employer

Get your employer to reimburse as many of your work-related expenses as possible, because that way you get 100% of the amount back. When you claim a tax deduction through your tax return, it’s based on the marginal tax rates so the amount you receive back depends on your overall income but is only a percentage of the overall expense.


Summary of tax deductions on work-related expenses:

  • Work-related expenses from stationery to training courses may be claimed as a tax deduction
  • For items costing over $300, you will have to calculate the decline in value of the item rather than being able to claim the whole cost
  • Keep all your receipts and a separate record of your expenses. To claim for phone call costs you should obtain an itemised bill if possible
  • Claiming as a tax deduction won’t reimburse the full amount to you so if possible, get your employer to cover the costs instead


Minimising tax with trusts

Understanding and minimising tax with trusts

19 Oct, 2016

Trusts provide an excellent way to manage and protect your family’s wealth, but what do you know about minimising tax with trusts?

Trusts offer the flexibility for you to distribute income and capital among beneficiaries in the most tax-effective way, and the trust founder may specify a date at which beneficiaries are entitled to the assets held in the trust for them. Until then, the trust is managed by someone else (the trustee).


Why would I choose a trust?

If you’re concerned that certain family members may not make good use of the assets you’ve worked hard to build up, creating a trust can offer better protection of your funds.

In particular, a trust can be useful when it comes to beneficiaries who have no idea about money management, suffer from addiction, have long-term health problems or need to protect their assets from a future relationship breakdown. Securing your assets in a trust can help protect it from creditors and anyone else who may have malicious intentions in mind.

There are two main types of trusts that families can use:

  •  Discretionary trusts: Usually set up either to hold property and investments on behalf of family members or to operate a business.
  •  Testamentary trusts: Created via a clause in a person’s ‘testament’ (or will), but not established until after the person’s death.

By setting up a testamentary trust, you can be assured of some level of financial security for your family after your death, even though you won’t be around to help manage it.

Minors especially can benefit from testamentary trust distributions being taxed at adult rates rather than the usual higher rates for minors.


Who manages a trust?

Any property held by a trust is the legal responsibility of the trustee. The trustee has a legal duty to manage the trust fund in the best interests of the beneficiaries and to always obey the terms of the trust deed.

In Australia a trust may operate for up to 80 years, although it’s common to include a clause in the trust deed allowing the trustee to close it down earlier if appropriate. Distributions must be documented by 30 June each year.


Minimising tax with trusts and other advantages:

Trusts offer many benefits over other methods of wealth management, including:

  •  Asset protection: Trusts offer protection of family assets against  ‘creditors and predators’ in the event of bankruptcy or insolvency in certain situations.
  •  Australia-wide: As long as a trust is established under Australian law, it can operate effectively in every Australian state.
  •  Flexibility: Trusts offer flexibility in terms of the variety of investments they can hold and also the way in which different types of income can be allocated to different beneficiaries.
  •  Little regulation: When compared to companies, trusts have relatively few reporting requirements and obligations.
  •  Tax minimisation: Income can be carefully managed between family members to minimise tax liability.


Disadvantages of trusts

There are some downsides to using trusts to manage your assets, including:

  • ATO scrutiny: If you want to keep the ATO happy, you’d better make sure that what you record on paper is matched by physical transactions.
  • High operating costs: The high costs of establishing and maintaining a trust may dwarf any potential benefits, especially if the assets involved are not particularly high-value.
  • Overseas beneficiaries: If some beneficiaries live overseas, or may do in the future, there are many potential tax implications. Seek specialist advice before proceeding.

The final point is advisable in any case, in fact. Before deciding to establish a trust, whether now or upon your death, seek financial advice so you can be sure that it’s the right choice for maximising your assets.



  • Trusts let you secure your assets for distribution to your family members on your own terms. This is particularly useful if you fear they would not manage the money well themselves or someone else may try to access it
  • You may elect for a trust to be established upon your death (a testamentary trust)
  • A trustee will be legally responsible for the trust’s assets and for managing it in the interests of the beneficiaries
  • Minimising tax with trusts is just one advantage to holding assets in this way; trusts offer great flexibility for a variety of assets
  • Trusts aren’t cheap to run, so may only be worth establishing for assets with a high value



deceased estate tax

Understanding and minimising the deceased estate tax

17 Oct, 2016

Just as we cannot avoid taxes during our lifetimes, taxes on death are inevitable. Although Australia doesn’t have the gift or inheritance tax that some other countries do, there are certain things surrounding a person’s death that are subject to a deceased estate tax.


Date of death return

When a person dies, the executors of the deceased estate must complete any outstanding tax returns and finalise the deceased person’s tax affairs.

Once this has been completed, the final personal tax return of the deceased person with their personal tax file number (TFN), covering the period from the previous 1 July to the date of their death, is known as the ‘date of death return’. This will include all assessable income derived by the deceased person and all the tax-deductible expenses incurred up to the date of death.

The final tax return is subject to general individual tax rates, with the full tax-free threshold, as well as the Medicare levy and Medicare levy surcharge. Any outstanding Higher Education Loan Program (HELP) debt is cancelled, although any compulsory HELP or Student Financial Supplement Scheme (SFSS) repayments will be included.


Making use of losses

Ordinary losses as well as capital losses will lapse at the time of death; they cannot be taken forward into the deceased estate. It’s therefore possible to make use of these, in some cases, by selling any assets that have risen in value prior to death.


Deceased estate tax returns

Any income received or deductible expenses incurred after the date of death are accounted for in the deceased estate’s trust return. Tax returns must be lodged for each year that the estate is deriving income, until fully administered.

In order to lodge a tax return for a deceased estate, a new TFN must be obtained.

Deceased estate income with no allocated beneficiary is taxed at general individual rates for the first three tax returns, with the benefit of the full tax-free threshold. In addition, no Medicare levy is payable. From the fourth year onwards, the concessional period lapses and special progressive trust tax rates apply instead. These are laid out in the table below.


Deceased estate tax rates (2015–16)

Deceased estate taxable income (no present entitlement) Tax rates
$0–$416 Nil
$417–$670 50% of the excess over $416
$671– $37 000 $127.30 + 19% of the excess over $594
$37 001–$87 000 $7030 + 32.5% of the excess over $37 000
$87 001–$180 000 $23 280 + 37% of the excess over $87 000
$180 001 and over $57 690 + 45% of the excess over $180 000

Source: © Australian Taxation Office for the Commonwealth of Australia.



Anyone who receives all or part of the deceased estate is classed as a beneficiary. Beneficiaries may have to pay tax on whatever they receive, but it depends on exactly what is distributed to them. If the trust distribution consists of:

  • Corpus: There is no tax payable.
  • Income: Tax is payable at the beneficiary’s marginal tax rate.
  • Assets: The beneficiary pay have to pay capital gains tax when disposing of the asset later on

Note that funeral expenses are not tax-deductible and they are excluded from the medical expenses tax offset.


To summarise:

  • Executors of the deceased estate are responsible for filing final tax returns for the deceased person – this is called the ‘date of death return’
  • Losses are not carried over to the deceased estate. It’s possible for a person to make use of this by selling appreciated assets before they die
  • Tax will be applied to income from the deceased estate at general rates for three years before reverting to higher tax rates
  • Beneficiaries (people who receive a distribution from the estate) may or may not have to pay tax, depending on the nature of the distribution



Understanding government benefits available to families

Understanding government benefits available to families

14 Oct, 2016

There are all kinds of government benefits available to families in certain situations, but it can get pretty confusing working out which, if any, you’re entitled to. Here is a run-down of some of the main family benefits available so you can see if you’re missing out on any that you may be eligible for.

Bear in mind that most of these are means tested, meaning that the higher your income, the lower the level of benefits you can receive. If your income exceeds a certain threshold you may not be entitled to benefits at all.

When estimating your annual income, if you’re in any doubt it’s better to overestimate rather than underestimate. You don’t want to find yourself owing money back to Centrelink after you’ve already spent it.


Family Tax Benefit Part A

This benefit gives families financial support with the cost of raising dependent children and dependent full-time students under the age of 18. The amount you receive will depend on how many children or dependents you have, how old you are, and your family’s income. It will be paid up to the end of the calendar year that your teenager finishes school.


Family Tax Benefit Part B

This benefit provides extra help to families with just one main income and where the primary earner has an adjusted taxable income under $150,000. The other parent may still earn up to $5,329 per annum before the benefit starts to decrease.

As of 1 July 2015, the Family Tax Benefit Part B has only been available to families with a child under the age of six.

You may also be able to claim for the Child Care Benefit if your child attends approved childcare services.


Parenting payment

Anyone who is the primary carer of a child may be entitled to financial help through the parenting payment. This is means tested on both income and assets.


Better start for children with a disability

Funding for early intervention is available for families with children under the age of seven who have been diagnosed with sight or hearing impairments, cerebral palsy, Down syndrome, fragile X syndrome, Prader Willi syndrome, Williams syndrome, Angelman syndrome, Kabuki syndrome, Smith-Magenis syndrome, CHARGE syndrome, Cornelia de Lange syndrome, Cri du Chat syndrome or microcephaly (before their sixth birthday).

Up to $12,000 of early intervention funding, capped at $6,000 per annum, will be paid direct to service providers on a fee-for-services basis via the Department of Families, Housing, Community Services and Indigenous Affairs (FaHCSIA).


Summary of benefits available to families:

  • There are a variety of benefits available to families with children; check carefully to see which may apply to you
  • When estimating your annual income for means testing, err on the side of caution and overestimate if you’re not sure. Otherwise you may end up owing money back to Centrelink
  • Family Tax Benefit Part A provides help with the cost of raising children, with Part B available to single-income families
  • Carers of children may be entitled to a parenting payment
  • Early intervention funding is available for children under seven diagnosed with certain conditions



minimising tax as a senior

Minimising tax as a senior or pensioner in Australia

12 Oct, 2016

When it comes to minimising tax as a senior Australian or pensioner, the senior and pensioner tax offset (SAPTO) may allow you to access more generous tax-free thresholds, meaning you can have a higher level of income before you are required to pay tax and the Medicare levy.

Those under the pension age (currently 65 but proposed to increase to 67 in 2023 and 70 by 2035) can earn an income of up to $20 542 before any tax is payable (taking into account all available benefits).


What are the tax-free income thresholds for seniors?

For pensioners and seniors, the thresholds are higher if you’re eligible for the SAPTO, as laid out in the table below.


Thresholds for senior and pensioner tax offsets (SAPTO) (2015–16)

Maximum offset Shaded-out threshold (taxable income)* Cut-out threshold (taxable income)
Single $2 230 $33 044 $50 884
Couple (each) $1 602 $29 739** $42 555**
Couple (combined) $3 204 $59 478 $85 110
Couple (separated by illness) $4 080 $64 088 $96 728

* Maximum offset reduced by 12.5 cents for each $1 in excess of shaded-out threshold.

** A taxpayer’s taxable income is taken to be half the couple’s combined taxable income.

Source: © Australian Taxation Office for the Commonwealth of Australia.


Even if you are not required to pay any tax (income below $33,044 for singles or $29,739 for couples), if you receive income from a share portfolio it is worth lodging a tax return as you can claim a refund on all of the excess franking credits attached to your dividends.

If you receive any additional superannuation benefit from a taxed source, it will be provided to you tax-free.


If you decide to sell your home

Seniors might worry that selling their home to downsize will result in surplus funds which get factored into means tests, resulting in reduced benefits. If they sell a family home which they have owned for at least 25 years, up to $200,000 of surplus funds generated from the sale may be invested in a savings account which will be exempt from the age pension means test for up to 10 years.


Summary of minimising tax as a senior:

  • Seniors and pensioners may be entitled to the senior and pensioner tax offset (SAPTO), allowing them to receive a greater amount of income tax-free
  • Those receiving income from shares, even if below the taxable threshold, should file a tax return to claim for franking credits
  • Income up to $200,000 gained from selling a home owner for over 25 years can be invested in a savings account exempt from means testing for up to 10 years


low-income earner

Minimising tax as a low-income earner

10 Oct, 2016

If you’re a low-income earner, there are a few tax benefits that you may be able to claim to give your earnings a boost.


Low-income tax offset

Individuals on lower incomes may be eligible for the low-income tax offset (LITO). At current rates, this provides a tax rebate of $445 for those who earn less than $37,000 per annum. This amount reduces by 1.5 cents for every dollar of taxable income you receive over $37,000, meaning the upper cap for the LITO is currently $66,667.

If you are a resident for tax purposes and earn within the salary threshold, you must file a tax return to be eligible for the LITO. If the ATO calculates that you are eligible for the rebate, it will automatically be applied to your assessment.

The LITO is only available to adults; it can’t be used by minors to reduce tax on unearned income.


What’s the difference between a tax offset and a tax deduction?

A tax offset is taken directly off your tax, so a $10 offset means you pay $10 less tax, regardless of your income level. A tax deduction is taken off your assessable income, so a deduction of $10 means you pay tax on $10 less of your income. A tax offset will return more to you than a deduction of the same value.


Superannuation co-contribution

If your total income comes in below the low-income earner threshold of $35,454 and you contribute $1,000 post-tax to your super fund, the government will contribute an extra 50% to make the total $1,500. This amount reduces by 3.333 cents per dollar you earn over the threshold, until at the higher income threshold of $50,454 there is no additional government contribution.


Superannuation spouse contribution tax offset

If your spouse has assessable income and reportable fringe benefits of less than $13,800, you may receive a rebate of up to $540 on any contributions you make to their superannuation fund.

The rebate is 18% of the lesser of:

  •  $3,000 reduced by $1 for every dollar that your spouse’s assessable income and reportable fringe benefits exceed $10,800
  •  the total of the eligible spouse contribution.

If one spouse earns significantly less than the other, you may benefit from implementing an income splitting strategy to minimise the amount of tax you pay between you. More information on income splitting can be found here.


Low-income superannuation contribution

Up to the 2016-17 financial year, the government made this super contribution of up to $500 annually for workers on adjusted taxable incomes of up to $37,000. The aim of this was to ensure that no tax is paid on superannuation guarantee contributions, but it has now been repealed and will not be applied in future years.


Summary of tax as a low-income earner:

  • People on low incomes can benefit from several forms of tax rebate
  • The low-income tax offset (LITO) offers a rebate of up to $445. You must file a tax return to have this credited to you
  • If your income is below $35,454 and you contribute $1,000 to your super fund, the government will add an extra $500
  • If your spouse’s income is below $13,800 and you contribute to their super fund, you may be entitled to a rebate of up to $540
  • The government’s low-income superannuation contribution of up to $500 will not apply after the 2016-17 financial year