Tax deductions you should include every year

Tax deductions you should include every year

There are many ways to top up your savings account or put a little extra into your superannuation fund. A pay rise, Christmas bonus, tax refund — even an unexpected cash prize could be the source of a much-needed extra boost to your savings. 

One fantastic strategy that’s often overlooked, however, is claiming tax deductions. There is a legion of expenses that can be claimed as tax deductions, netting you some useful savings. With June on the horizon, here’s a breakdown of some of the costs that ought to be in your sights come the end of tax year. 

Employees

Workers have a plethora of tax deductions they can claim, with perhaps the most notable one being clothing. If you have any work-specific items of clothing you’ve had to purchase — a work uniform for instance, or protective clothing such as particular types of footwear or a hard-hat — you can claim their cost as a deduction. This also applies to work-specific clothing like a chef’s hat or an apron, as well as essential tools and equipment you’ve had to purchase.

It’s not just the cost of buying these items, however. Any expenses you incur in washing, drying and otherwise taking care of clothing can also be claimed, too. You can even do this for any cleaning and drying you do yourself, at a rate of $1 per load. 

There are a host of other deductions you can claim as long as they relate to how you earn your income. If you work from home, the cost or decline in value of equipment like your computer, phone or printer can be claimed. Similarly, if you went to any paid seminars or workshops to improve your skills, this can also be a deductible. These may seem like small savings, but once you put them in a high interest savings account, they can really make a difference.

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Investors

Do you make a good chunk of your income through investments, whether it’s property, shares or some combination? If so, there are numerous tax deductions available that can bolster the revenue you’re earning. 

Any expenses incurred in the process of earning interest, dividends and other forms of investment can be claimed. Are you being charged an account-keeping fee for an account you use to invest? Deduct it. Are you accruing interest on an investment home loan or another type of debt you used to buy assets? Claim it. Have you ever sought out the services of a financial planner or other advisor to give you guidance for your investment strategy? That’s deductible. 

Property investors are particularly advantaged here, because there are so many expenses associated with running a rental property. Council rates and body corporate fees, maintenance and repairs, pest control and cleaning, property manager fees — all of this and more can be claimed on your investment property as a deduction. 

Business owners

Finally, you may earn your income by being one of the 1.8 million business owners in Australia (as recorded by 2009-10 Australian Bureau of Statistics data). Small businesses, and young ones in particular, can often find it tough going to keep their cash flow in the positive figures, so any way they can reduce their outgoing costs could be a blessing. Thankfully, there are plenty of deductions available.

Business owners can claim everything from accounting and bookkeeping preparation costs, to legal fees, electricity, gas and fuel, and even salary, wages and bonuses they pay their workers. You’ll also find costs like superannuation contributions, insurance premiums, and staff training and recruitment expenses on this list. This is just a small sample, and looking at the list of deductions available for business owners, you’d be forgiven for thinking the list of what can’t be deducted is shorter. 

For some, the resulting savings could perhaps be put toward paying off a home or business loan. Savers who want to place it into a high interest-earning account, however, will want to compare term deposits to make sure they get the most favourable rate possible for the amount they shave off their tax.

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Learn more about savings accounts

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.