Deductions from a Taxpayer’s Assessable Income

Last updated 30 June 2023

Deductions that may be made from a taxpayer’s assessable income include:

expenditure to earn income
trade union, professional and business association membership fees
fees paid to a registered tax agent for preparing your tax return
gifts to organisations that have been approved under the Income Tax Assessment Act 1997 (Cth). These include most public hospitals, school building funds, public libraries, public art galleries, public museums, and some welfare and conservation bodies
superannuation contributions up to annual limits, but only those made by self-employed persons or employees not covered by an employer-sponsored scheme.

Expenditure to earn income

For employees, expenditure to earn income includes necessary tools of trade, uniforms, protective work clothing and boots. It does not include ordinary work clothes, haircuts, transport to and from work or child minding.

For self-employed persons, it can include rent of business premises, lease (but not hire-purchase) payments for equipment, cost of materials used, subscriptions to business journals and periodicals, cost of seminars and conferences, a percentage of personal motor vehicle and petrol costs, a percentage of home telephone bill, business promotion expenses and bank charges. Some of these expenses may also be tax deductible for employees.

Non-deductible expenditure

Expenditure of a capital nature (i.e. expenditure that produces a lasting asset such as a desk or truck) is not deductible.

However, a proportion of most capital expenses may be deducted each year as depreciation, at a rate based on the effective life of the particular equipment or on the determination of effective lives published by the Commissioner of Taxation.

Maintenance payments to a spouse for that spouse or for children are not tax deductible.

Tax offsets

Tax offsets (sometimes also referred to as rebates) directly reduce the amount of tax you must pay. They are not the same as deductions, which are taken off your income before your taxable income is worked out. With a tax offset, you work out the tax due on your taxable income and then reduce it by the total amount of your tax offsets.

The most important tax offsets include private health insurance and franking credit offsets. Some offsets for pensioners can be transferred to a spouse, as can a childcare offset. As these rules have become more complex, detailed questions should be referred to a tax adviser.

Generally, tax offsets do not reduce your Medicare levy, however, where you have excess refundable tax offsets you can use them to reduce your tax, including your Medicare levy.

Claimable tax offsets

Low and middle-income earner tax offsets

From 1 July 2022, a taxpayer may be eligible for the low-income tax offset or low and middle-income tax offset if their income is below a certain range. These ranges are listed on the Australian Taxation Office website.

Beneficiary tax offset

The beneficiary tax offset is available to taxpayers who receive certain Australian Government allowances and payments. Generally, you pay no tax if your only income is a qualifying tax-free government pension or benefit. If you are not in receipt of the full amount of any such qualifying benefits and allowances or have other taxable income, you may be eligible for a partial offset.

Maintaining an invalid or invalid carer

Taxpayers may be able to claim a tax offset if they maintain a certain invalid or invalid carer.

Health insurance

The private health insurance offset is a percentage of the premium you pay to a registered health insurer for a complying private health insurance policy. The offset is affected by your level of income.

Pensioners and senior Australians

The senior Australians tax offset and the pensioner tax offset allow eligible people to earn more income before they have to pay tax and the Medicare levy.