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

Do I have to claim interest on my savings account?

When you lodge your income tax returns, you must include in the documentation all your sources of income, including bank interest. Your bank will report any interest you earn on the funds in your savings account to the Australian Tax Office (ATO). When the ATO then compares this information with your tax returns,  you also need to have mentioned the interest earned. If there is any discrepancy, you’ll receive a letter from the ATO. 

Avoid this situation by ensuring you receive your bank statement with interest noted. Then declare the interest in your tax returns and pay the tax that’s applicable based on the income tax rate.

You only need to claim your share of the interest earned for joint accounts. If you manage an account for your child and receive or spend money via this account, you will also need to report any interest earned from said account.

What is an ANZ locked savings account?

An ANZ locked savings account locks your money and prevents you from spending. You may use a standard savings account as the account where your salary is deposited. You can then withdraw funds when needed, but aren’t able to make purchases with it. However, this account may not grow much as the continual withdrawing of funds will limit the interest you can earn.

With a locked savings account in ANZ, you know your savings will grow because you can’t access the money. You can also qualify for a bonus when you deposit at least $10 per month and don’t make any withdrawals. To help you with this further you can set up an automatic transfer from your regular ANZ savings or transaction account so you don’t forget to make a monthly deposit.

Your ANZ locked savings account offers you a base interest rate of 0.1 per cent per annum plus an additional bonus interest of 0.49 per cent per year. The interest is calculated daily and credited to your account on the last working day of the month.

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.

Should I open a Commonwealth locked savings account?

If you have trouble saving money, a Commbank locked savings account could be a potential solution. A locked savings account won’t let you make withdrawals and as such, it can help you grow your savings balance if you keep topping it up. 

The Commonwealth locked savings account advertises high-interest rates and minimal maintenance fees, along with a host of other incentives that will encourage you not to touch the money. 

The account offers a higher interest rate for each month that you make limited or no withdrawals, as well as regular deposits. 

To qualify for a Commonwealth locked savings account with the advertised features, you will need to fulfil specific criteria such as:

  • Depositing a fixed minimum amount into the account every month.
  • Making a fixed number of deposits each month.
  • Making a minimum or no withdrawals each month.
  • Maintaining a minimum account balance.

Can you have multiple ING savings accounts?

Yes, you can open up to nine accounts with ING at any particular time. If you’re saving money for various goals, such as buying a car or taking a holiday, you can name each of your multiple ING savings accounts differently.

To get a Savings Maximiser account, you’ll need to deposit more than $1000 every month and make at least five additional purchases. If you also want to grow your savings, from 1st March 2021, you can earn up to 1.35 per cent per annum variable interest on one account with a balance of up to $100,000 when you also maintain an Orange Everyday account.

With ING, multiple savings accounts can help keep track of all your savings goals. All the accounts offer flexible withdrawals where you can withdraw as low or as high as you want without impacting your earning interest rate. However, you can only earn the bonus interest on one account. To apply for a Savings Maximiser account, you can visit ingdirect.com.au.

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.

What are the requirements of an ING Bank locked savings account?

An ING bank locked savings account - also called a term deposit - offers you interest in exchange for holding your money for a period of time.

The terms offered include as little as 90 days or as long as two years. Generally, the longer you lock your money away, the higher the rate of interest. 

The minimum deposit amount for an ING locked savings account is $10,000. 

To be eligible to apply, you must: 

  • Be an Australian resident for tax purposes
  • Be aged 13 years or older
  • Hold the account for personal use (ING offers business term deposits as a separate product). 

 

Should I open multiple savings accounts with UBank?

UBank offers customers an opportunity to make the most of their savings by opening multiple savings accounts. Having multiple savings accounts with UBank may be ideal for savers tracking different goals in separate accounts. 

It’s important to note that to earn bonus interest, you will still need to meet the conditions of the UBank savings account every month. If you don’t make these deposits, you will receive the standard interest rate, which is typically lower. 

Keep in mind that you won’t earn bonus interest on your UBank savings account in the month an account is opened and if you open multiple savings accounts with UBank, you'll start earning any bonus interest the following month. 

It's also not yet known how long the special interest rate will hang around for, so please check with your bank for more information. 

What is a Westpac locked savings account?

The Westpac locked savings account (also known as "Westpac Life") can help customers reach savings goals faster through bonus interest. Customers receive 0.2 per cent standard base interest with a variable bonus rate of 0.35 per cent when the closing balance at the end of the month is higher than the opening balance.

There are some conditions to earn the bonus interest on Westpac's locked savings account, though. First, you’ll need to increase the balance each month either through a deposit or not making any withdrawals, and then link it to a Westpac Choice account and make at least five eligible payments using your debit card. Please consult your bank as to what an eligible payment is. 

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 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. 

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.