A $120 purchase for work is not automatically a $120 tax deduction. Knowing how to claim work expenses properly means understanding what you paid for, why you needed it to earn income, and what evidence you can provide if the ATO asks. Getting these details right can reduce your taxable income while helping you avoid claims that may be disallowed.
For employees, sole traders and business owners, the starting point is the same: a deduction must have a genuine connection to earning assessable income. The rules become more detailed once you look at travel, working from home, equipment and mixed work-and-private use.
How to claim work expenses under ATO rules
Before adding an expense to your tax return, apply three practical tests. You must have paid for the expense yourself, it must relate directly to earning your income, and you must not have been reimbursed by your employer or another party.
If your employer paid you back for a purchase, you generally cannot claim it as a deduction. Similarly, an item that is partly private and partly work-related must be apportioned. You can claim only the work-related portion. A mobile phone used 70 per cent for work, for example, may support a 70 per cent deduction if your records reasonably demonstrate that pattern of use.
The name of an item does not decide whether it is deductible. Its purpose does. Ordinary clothing is usually a private expense, even if you buy it specifically to wear to the office. However, a compulsory uniform, protective clothing or occupation-specific clothing may be claimable where it meets the relevant requirements.
Keep records before tax time arrives
Receipts are the foundation of a sound claim. Keep invoices, store digital copies and make a short note when the work purpose is not obvious from the receipt. For recurring costs such as phone use, internet, vehicle use or home office expenses, records need to show how you worked out the work-related percentage.
Useful records can include a diary, calendar entries, rosters, kilometres travelled, timesheets and a log of work calls or data use. Bank statements can help confirm that you paid, but they do not always explain what the purchase was for. A receipt plus a clear work-purpose note is much stronger.
The ATO generally expects you to retain records for five years after lodging your tax return. While there are limited written-evidence exceptions for small claims, relying on an exception is rarely the easiest approach. Keeping records as you go reduces stress at tax time and gives you a clear basis for your claim.
Common work expenses and where care is needed
The expenses you can claim depend on your occupation and working arrangement. A nurse, tradesperson, sales representative, consultant and business owner will have different legitimate costs. These are common areas where the rules matter.
- Vehicle and travel costs: Travel between separate workplaces, or from your usual workplace to a temporary work location, may be deductible. Ordinary travel between home and your regular workplace is generally private and cannot be claimed. If you use your own car for work, you may be able to use the cents-per-kilometre method or the logbook method, depending on your circumstances. Each method has different record-keeping requirements.
- Working from home: You may be able to claim the work-related running costs of working from home, such as energy, internet and mobile usage. The fixed-rate method and actual-cost method have different requirements, and you must keep appropriate records of hours worked and expenses paid. You cannot claim the same cost twice under different methods.
- Tools, equipment and software: A work-related tool, laptop, monitor, subscription or software licence may be deductible to the extent it is used for work. Lower-cost items may often be claimed immediately, while more expensive assets may need to be claimed over time as a decline in value. Private use must be excluded.
- Education and professional costs: Courses, seminars, subscriptions, union fees and professional memberships can be deductible when they maintain or improve skills used in your current work. Study that helps you move into a new occupation is generally not deductible, even if it may lead to better future income.
- Clothing and laundry: Conventional clothing is not claimable simply because you wear it at work. Claims may be available for protective items, compulsory uniforms and certain occupation-specific clothing. Laundry claims also need a reasonable basis and, where required, supporting records.
Working from home without overstating a claim
Working from the kitchen bench for part of the week does not automatically allow you to claim a share of every household bill. The claim needs to reflect your actual work use and the method you choose.
Under the fixed-rate method, the hourly rate is intended to cover specified running costs, so claiming those included costs separately would duplicate the deduction. Some items, such as work-related phone and internet costs, may be treated differently if they are not already included, but the detail matters. Under the actual-cost method, you need to calculate the work-related share of each eligible expense and retain the supporting documents.
Occupancy costs, such as rent, mortgage interest and council rates, are particularly sensitive. Employees working remotely will not usually be able to claim them. A business operating from home may have a different position, especially where there is an area set aside exclusively for business. These claims can also have consequences when you sell your home, so tailored advice is worthwhile before proceeding.
Expense claims for sole traders and businesses
For a sole trader, the business and the individual are legally the same taxpayer, but business records should still be kept separately and carefully. A separate bank account, organised bookkeeping and regular reconciliation make it much easier to identify deductible costs and prepare an accurate return.
Businesses can generally claim costs incurred in running and earning income from the business, including premises, advertising, insurance, accounting fees, stock, contractor payments and business-use equipment. However, private expenses, owner drawings and fines are not deductible simply because they were paid from the business account.
If your business is registered for GST and entitled to claim GST credits, your income tax deduction is generally based on the GST-exclusive amount. The GST treatment, BAS reporting and income tax deduction need to align. This is one reason consistent bookkeeping is more reliable than trying to reconstruct a full year of transactions at lodgement time.
Avoid the errors that trigger problems
The most common mistake is treating a reasonable-sounding expense as automatically deductible. A purchase can be useful for work and still be partly private, capital in nature, reimbursed or insufficiently connected to earning income.
Take extra care with home-to-work travel, everyday clothing, meals, childcare, private portions of phone and internet bills, and expenses paid by an employer. Do not estimate a number because it feels about right. A reasonable calculation based on records is far easier to support.
It also helps to check whether a deduction should be claimed now or over several years. Equipment and other assets may be subject to depreciation rules, while prepaid expenses and repairs can have their own treatment. The correct outcome depends on the facts, not just the amount on the receipt.
A simple process for claiming expenses confidently
Make claiming part of your regular financial routine rather than a June scramble. Save receipts when you make the purchase, record the work purpose, and review your transactions monthly. By tax time, you should be able to see what was paid, what was reimbursed and what percentage relates to work.
If an expense sits in a grey area, ask before lodging rather than guessing. A registered tax agent can help you apply the current rules to your role, business structure and records, and can explain the practical steps in plain English. That small amount of clarity can make your tax return more accurate, more defensible and far less stressful.
