Calculation of Total Allowable Tax Deductions

Governments raise taxes for services and structural elements such as roads, hospitals and defence. One of the key revenue sources for the government is the income tax. Many businesses and employees pay income tax through their local taxation system.

Each pay period, her employer deducts her pay and forwards this to the Taxation Office. Income tax is not calculated on a person’s gross income. Employees may have incurred costs in doing their jobs, such as having to pay for protective clothing or having to pay for books or training necessary for their work. Such costs are allowable deductions.

$$ \large \text{Taxable income} = \text{Gross income}-\text{Allowable deductions}$$

The income tax that a worker pays is calculated on taxable income. When completing your tax return, you can claim deductions for expenses related to earning your income. You subtract these allowable deductions from your total income to arrive at your taxable income – you only pay tax on your taxable income. The expense must not be a private, domestic or capital expense. You could only claim a deduction for the work-related portion if the expenses were both work-related and private or domestic.

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Question 1

Tony claims work-related deductions;

\( \begin{array}{rl} \text{Clothing} &\$320 \\ \text{Business Diary} &\$72 \\ \text{Calculator} & \$40 \end{array} \)

Calculate Tony’s total deductions.

\( \begin{align} \text{Total deduction} &= $320 + $72 + $40 \\ &= $432 \end{align} \)

Question 2

Daniel claims work-related deductions;

\( \begin{array}{rl} \text{Petrol} &\$20 \text{ per fortnight} \\ \text{Uniform cleaning} &\$7 \text{ per week} \\ \text{Mobile phone} & \$40 \text{ per month}\end{array} \)

Calculate Daniel’s total deductions.

\( \begin{align} \text{Total deduction} &= $20 \times 26 + $7 \times 52 + $40 \times 12 \\ &= $1364 \end{align} \)


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