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What you can claim on tax this year & how it could help you buy a home

In the lead up to tax time this year, you might be wondering how you can make the most out of your tax return, increase your tax refund or take advantage of government concessions. If you’re looking at buying a home or thinking about how you could pay more off your mortgage, tax time could be a great chance to boost your cash flow.

The amount you can get back at the end of the financial year will differ depending on your individual circumstances. In this article we explain what deductions you can claim, including if you work from home, so you can potentially maximise your tax refund. We also explain the tax offset and government schemes extended in this year’s federal budget. Then, we discuss how you could use these savings to put towards purchasing a property or paying off your home loan faster.

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What expenses can you claim this year?

Deductions are expenses you can claim that reduce your taxable income, which reduces how much tax you pay. Most of these deductions are directly related to how you earn your income, however there are some that are not work-related. For work-related deductions, you must not have been reimbursed for the expense by your employer. It must directly relate to how you earn your income, and you must have a record to prove it.

The main work-related deductions you can claim are:

  • Vehicle and travel expenses
  • Clothing, laundry and dry-cleaning expenses
  • Home office expenses
  • Self-education expenses
  • Tools, equipment and other assets
  • Other work-related deductions like union fees and overtime meals

Other deductions that are not work-related include:

  • Cost of managing tax affairs (i.e. your tax accountant)
  • Gifts (money or property) to a deductible gift recipient and charitable donations
  • Personal super contributions
  • Interest charged by the Australian Tax Office (ATO)
  • Expenses incurred in earning interest, dividends and other investment income
  • Undeducted purchase price of a foreign pension or annuity

Working from home? Here’s what you can claim

For those working from home because of COVID-19, the same conditions apply to work-related deductions for those not working from home. The main difference is in what deductions you can claim and how you are able to track these deductions.

If you work from home, you can claim a deduction on the additional expenses you incur, such as:

  • Electricity costs associated with heating, cooling and lighting the area where you work, plus running items you are using for work
  • Cleaning costs for a dedicated working area
  • Phone and internet expenses
  • Computer consumables like paper and ink, plus stationery
  • Home office equipment, like computers and furniture

Because of the increase in workers doing their job from home due to the COVID-19 pandemic, the ATO introduced the shortcut method for tracking deductions. With this method, you can claim a deduction of 80 cents for each hour you worked from home between 1 July 2020 and 30 June 2021 if you were working from home to fulfil your employment duties (i.e. not just checking emails every now and then) and you incurred additional running expenses as a result of working from home.

Extended tax offset: what does this mean for your wallet?

As part of the 2021 federal budget announced last week, the Low and Middle Income Tax Offset introduced in last year’s budget has been extended. This tax offset means you pay less tax if you fall under certain income thresholds. The ATO will apply this offset when they review your tax return, so there’s no need for you to do anything to receive it if you are eligible.

See the table below for an idea of how much you could save:

Taxable incomeOffset
$37,000 or less$225
$37,001 to $48,000$255 plus 7.5 cents for every $1 above $37,000 (up to a max of $1,080)
$48,001 to $90,000$1,080
$90,001 to $126,000$1,080 minus 3 cents for every $1 of the amount above $90,000

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First Home Super Saver Scheme withdrawal upped to $50k

The government’s First Home Super Saver Scheme allows eligible first home buyers to make voluntary super contributions both before tax (concessional) and after tax (non-concessional), and then withdraw them to put towards a home loan deposit.

The reason this scheme helps you save for a deposit faster is because super is taxed at a lower rate than your income. This means that you can save on tax for money that is inside your super fund, rather than paying a higher tax if your income was sitting in a regular savings account.

To be eligible for the scheme, you must be 18 years of age or older, never have owned a property in Australia, intend to live in the property you purchase, and you must live in the property for at least 6 months of the first 12 months you own it.

Previously, eligible applicants could withdraw up to $15,000 of super per year, and withdraw a total of $30,000 over the years you use the scheme. However, last week the federal government announced that the limit would be increased to $50,000 as part of the 2021/2022 financial year federal budget.

Using your tax time savings to buy a property

If you now have a handle on all the ways you could potentially reduce your taxable income by claiming the deductions you are eligible for, you might be wondering what you could do with the money you’ve saved. Or, maybe you want to put your tax offset lump sum to good use.

Prospective home buyers could use their tax refund or any tax offset received to put towards increasing their home loan deposit. We know how challenging it can be to save up a deposit as large as 20% of a home’s purchase price, so using your tax time savings for this purpose could make the process that little bit easier. Or, you could put aside your tax refund to go towards other home buying costs like stamp duty to help lighten the load.

Also, government schemes like the First Home Loan Deposit Scheme restart in the new financial year, so it could be a good idea to review whether you are eligible for any of these programs that may help you get into the housing market. In last week’s federal budget, the government announced it would be adding 10,000 extra places to the First Home Loan Deposit Scheme from 1 July 2021. This means that more first home buyers can access this scheme that allows them to build or purchase a new home with a deposit of as little as 5%.

Using your savings at tax time to save on your mortgage

If you already own your own home, the start of the financial year may be a great time to maximise your tax refund and use it to help pay off your mortgage faster.

If you have a variable interest rate home loan, you could put your tax time savings towards extra repayments on your home loan, or inject more cash into your offset account to help reduce the interest you’re charged each month.

Paying off more of your home loan with your tax refund is likely to increase your equity, which you might want to use to renovate your home or buy another property.

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If you still have questions about buying your own home or reducing the mortgage on a property you own, speak to one of our Home Loan Specialists at a time that suits you.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, interest rate, first home, first home buyer, new purchase, deposit, variable interest, offset account

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