written by: Ritchie Cruz, Principal Director
There has been much confusion when people say “just claim that on tax”, or “you can get that back on tax”. The confusion lies between the person thinking that they can get the whole amount back, and what they actually get back from their tax return.
Tax Deductions
Deductions work as a reduction in taxable income. Claiming deductions lowers your taxable income, which in turn lowers your tax payable. When you purchase work related equipment, you generally get a tax deduction for this. With the Federal Government’s $20,000 tax “write off” announced in the 2015 Budget, this is treated as a deduction. See example below (this is only for illustration purposes and does not represent real tax rates):
Gross income $100,000
Tax Payable at 30% $30,000
Tax deductions:
Training cost ($ 1,000)
Subscriptions ($ 1,000)
Taxable income $ 98,000
Tax Payable at 30% $ 29,400
With the example above, a $2,000 tax deduction equates to a $600 tax refund. That is, you effectively get back from tax rate that you are currently on.
Tax Rebates
Rebates are amounts you get back from tax at its full value. That is, you get 100% of the amount back from tax. An example of a rebate is a Private Health Insurance rebate, where most income earners are entitled to 30%. So, when you purchase a premium, instead of paying (say) $1,000, you only pay $700 as you receive a “rebate” of 30%. Other examples of rebates are low income tax rebate, Pensioners tax offset, Dependants tax rebate and remote area offsets.
