Income tax allowances & rebates

How can I pay less?

All taxpayers can claim allowances from their taxable income and rebates in addition to credit for tax paid during the relevant financial year.

Allowances reduce taxable income, but rebates are subtracted from the tax payable on your taxable income. Rebates are essentially available only to Australian residents whose dependants also live in Australia. There’s no unified system of allowances or rebates that applies to all taxpayers. Full details of all allowances and rebates for individual taxpayers are contained in the free Tax Pack. There’s a federal government taxation incentive for those who let a property for less than their mortgage repayments, when the loss can be offset against other income.

Allowances

Most allowances are occupation-specific and must be legitimate expenses incurred in earning your taxable income, provided they aren’t capital, domestic or private. They’re commonly claimed by employees and include self-education, travel and work expenses. Allowances are also allowed for certain non-business expenses, such as gifts to approved charities. Allowances must usually be substantiated by documentation, and special documentation requirements must be met where employment-related expenses exceed $300 per year.

Expenses: Expenses are usually fully deductible provided that they’re incurred in producing taxable income or necessarily incurred in carrying on a business for that purpose. Expenses of a capital, domestic or private nature and those incurred in the production of exempt income aren’t deductible. Separate records must be kept of business travel and motor vehicle expenses. Entertainment expenses aren’t tax deductible unless they’re incurred for the provision of fringe benefits to employees. Allowances are made for commissions and similar business expenses, interest, maintenance, rents, repairs, and salaries and wages paid to employees.

Expenditure for the acquisition or improvement of assets isn’t deductible (other than depreciation, which may constitute an allowance), but it may be added to the cost base of an asset for capital gains tax purposes and reduces any taxable gain arising from a later disposition. Capital losses can also be offset against capital gains. Australian-source losses may be deducted against the same or different sources of income, and excess losses incurred on or after 1st July 1989 may be carried forward indefinitely, as can excess capital losses after 19th September 1985.

You shouldn’t hesitate to claim for anything that you believe is a legitimate business expense. The ATO disallows them if it doesn’t agree, but what it won’t do is grant you an allowance to which you’re entitled but which you’ve forgotten to claim. The profit earned in the operation of your business is added to any other income and you’re taxed on the total. Each partner in a partnership is taxed individually on his own share of partnership income.

Rebates

Rebates (also called tax offsets) provide you with tax relief and are subtracted from the tax due on your taxable income. If rebates are greater than the tax due, you don’t pay any tax. There are two exceptions to this: the private medical insurance rebate, where the excess is refunded; and the landcare and water facility rebate, where the excess is carried forward and used to reduce future tax liability. Rebates don’t reduce your Medicare levy . Rebates are made on tax due in respect of:

Savings income – 15 per cent with a maximum rebate of $450.
Private health insurance premiums – at 30 per cent provided the insurance is from a registered health fund (you may choose to claim the rebate as a reduction in your insurance premium).
Net medical expenses (including dental, medical and optical aids) over $1,500 that aren’t reclaimable from Medicare or private health insurance – at 20 per cent.

Other rebates apply to certain taxpayers, including the following:

People living in some remote or isolated areas, mostly in northern and central Australia.
Beneficiaries, overseas forces personnel and pensioners.
Low-income taxpayers: if the sum of your taxable income is less than $30,999, you may be eligible for a tax rebate of up to $1,000.
Certain dependants, as follows:

Dependant	Rebate ($)
Spouse (including de facto)	1,535
Child	1,535
Child with own dependent child	1,841
Invalid relative	691
Parent or parent-in-law	1,381

Some rebates, such as beneficiary and pensioner rebates and the rebate for low-income taxpayers, are means tested.

Family Tax Benefit: Family tax benefit is a rebate paid to low-income families to help with the cost of raising children; it’s subject to an income test, usually based on your tax return from the previous tax year. Benefit can be paid either directly by the Family Assistance Office or through the tax system. For further information contact the Family Assistance Office (local call rate 13-6150, www.familyassist.gov.au ).