One of the most common discussions that can crop up around this time of the year relates to claimable tax deductions, and that child care should be tax-deductible as it is an expense incurred to earn your income.
This statement makes sense, but it’s not necessarily correct.
According to the rules, a tax deduction for an expense directly incurred in earning assessable income can be claimed on your return.
You may be incurring childcare expenses to earn your income.
However, the law then states that a tax deduction cannot be claimed where:
- The expense in capital in nature
- The expense in a private or domestic expense; or
- There is another specific provision in the tax act that prohibits it.
This is where things get tricky: child care expenses are considered by the Australian Taxation Office to be of a private or domestic nature.
As a general rule, most expenses associated with a taxpayer’s home are of a private or domestic nature and do not qualify as deductions for taxation purposes. An exception to this general rule is where part of the home is used for income-producing activities and has the character of a “place of business”.
Child care does not typically fall under this category of exception.
Another item that commonly catches people out on their income tax return and is considered an expense of private or domestic nature is clothes that are not a specific uniform. For example, if working as a waiter requires you to wear black pants, or a PT instructor wears generic gym clothes, these are not claimable.
Travel to and from work is also considered as private and domestic (whether it is by car or public transport). As a judge in the UK once stated, “You are not driving to work and back home again; instead, you are driving away from work and back to work again. It is your private decision to live away from work.”
Many other expenses may or may not be claimable on your tax return this year, so why not start a conversation with us so we can assist you with working out what applies to you?
