Defence Force Tax Deductions For 2021: The Ultimate Guide
As Australian Defence Force (ADF) members still pay income tax on salaries and allowances, members of the military in Australia can claim a wide range of tax deductions on their annual return. The Australian Defence Force (ADF) includes the Royal Australian Air Force employees, the Royal Australian Navy, the Royal Australian Army, or the other tri-service units.
For Australian Defence Force members, only expenses incurred due to performing ADF-related work or service are claimable on your income tax return. Personal or household expenses or expenses that resulted from side businesses are not tax-deductible, and certain rules must be followed to claim expenses such as mess fees and uniform costs.
This article covers the essential rules and finer details regarding income tax deductions available to Australian Defence Force members, including the Australian Army, Navy and Air Force.
Read on to find out more about military tax deductions in Australia, as well as several tax offsets available to Defence Force members. Learning which expenses are deductible for ADF members will help you maximise your 2021 tax return.
Australian Defence Force Tax Deductions for 2021
When it comes to claiming tax deductions related to Defence Force duties, there are two key things that you need to consider:
- Tax deductions must be expenses directly connected to ADF work duties. However, not all costs related to Navy, Army or Air Force work in Australia are deductible, so you need to determine which ones can be claimed in your income return.
- If deductions amount to more than $300, you need to have valid evidence of such expenses, like contracts, invoices, and receipts. The ATO requires you to keep these documents for five years.
To keep track of your work-related expenses throughout the year, consider using the ATO app’s myDeductions tool. The tool will help you record information on your costs and upload the recorded data on your tax return.
Below is a comprehensive list of everyday work-related expenses that you can claim as ADF tax deductions:
Clothing and Uniform Expenses
As an ADF member, you will most likely receive a uniform allowance. You must include this amount as income on your tax return. However, tax deductions are permitted on the cost of your military uniform, including purchase, maintenance, repair, and laundry.
This tax deduction for Army, Navy and Air Force uniform costs is not automatic, and you will need to file the actual expenses incurred, meaning your costs may be more or less than the uniform allowance you receive.
ATO’s definition of compulsory military service uniform includes the following:
- Official shirts and trousers
- Official jumpers and jackets
- Official mess uniform
- Official hats or caps (may have rank or embellishments)
- Compulsory shoes
- Service handbags and clutch bags
- Compulsory socks and stockings that are distinct and integral to the uniform
- Camouflage shirts and trousers
You can refer to your branch’s uniform policy or guidelines to confirm if certain items are considered part of the uniform. The policy will define which items are considered both distinctive and compulsory – the requirement for tax-deductible clothing items.
Some special uniform items can also be tax-deductible, such as costs for military medal mounting.
Conventional items or accessories like t-shirts, underwear, fashion items, and hair accessories are not tax-deductible. Sports and workout clothing are also not claimable on tax, even if they have an ADF or unit logo.
Laundry expenses can be claimed at the following rates:
- $1 per load of uniform clothing only
- 50c per load of mixed personal and uniform clothing
Dry cleaning and repair costs can be claimed at the actual rate, according to receipts.
If you receive a uniform maintenance allowance, you must include this as income on your tax return.
Protective Clothing & Footwear
Expenses on protective clothing and footwear are tax-deductible if you use them to lower the risk of injury or illness while doing work-related tasks. However, you can only claim the cost of safety gear if ADF did not provide the protective equipment or reimburse the purchase.
Protective clothing can include:
- Fire-resistant clothing
- Protective gloves
- Safety boots
- Aprons and smocks
- Protective glasses
You can’t claim a deduction for clothing that protects you from the elements, like thermal underwear or wet weather gear.
Tools & Equipment
ADF tax deductions include costs for tools and equipment used for Army, Navy or Air Force duties. If used for both work and private purposes, only the work-related percentage is tax-deductible.
You can claim a full tax deduction for purchases under $300, and if the cost is higher, you can claim for depreciation throughout the life of the item.
You cannot claim a tax deduction for tools and equipment if your employer reimburses the cost or if you did not personally pay for the equipment.
As part of the Australian Air Force, Navy or Army, you can claim travel-related expenses on your tax return if they are directly related to your defence force duties and responsibilities.
Work-related travel activities may include:
- Attending a meeting.
- Participating in a conference or seminar.
- Visiting a base in another city.
Examples of travel expenses are:
- Public transport tickets (trains, buses, taxis)
- Plane tickets
- Toll fees
- Parking costs
- Car rental fees
Travel expenses refer to transport costs as well as accommodation, meals, conference fees, and other costs related to work travel.
In most cases, ADF branches grant an allowance to members who need to travel for work. However, you may still file for claim on any amount that exceeds the allowance given to you. Just make sure to secure proof for this type of deduction, and if you’re claiming a deduction for a specific trip, you must also include any travel allowance you received on your tax return.
Some types of vehicle expenses are tax-deductible if they result from fulfilling military duties. In this type of deduction, vehicle expenses that involve domestic and interstate travel are both valid. You cannot claim car or transport expenses that are private and domestic.
Some common examples of work-related car expenses include:
- Travel on the base using your vehicle
- Travel between bases,
- Travel from a base to another location when it is work-related and required.
The cost of driving from home to work (and vice versa) is not claimable unless you need to transport large or bulky equipment that cannot be stored on-site.
In calculating the deduction related to car expenses in Australia, there are two methods used: the cents per kilometre method and the logbook method.
The cents per kilometre method takes into account not only the cost of fuel but insurance and vehicle maintenance as well. It’s easier to calculate the deductible amount, as you don’t need to keep a full logbook. However, you may need to show the ATO written evidence of your calculations and how you determined your business kilometres.
The logbook method requires you to maintain a vehicle logbook for a minimum of 12 consecutive weeks, recording the odometer readings. Using this record, you will need to calculate a figure called the “taxable purpose proportion”, derived from a percentage of the total expenses of the car. The logbook method allows you to claim depreciation for your car using either standard or simplified depreciation rules.
Self-Education and Study Expenses
Self-education for ADF members is a tax-deductible expense if it is directly connected to the member’s current position and other income-earning activities. Here are examples of deductible self-education expenses:
- Language courses not provided by military school
- Courses offered by an educational institution
- Home office expenses associated with studying
- Subscriptions to journals and magazines with content related to your ADF position
- Travel expenses from home to the place of study
- Conferences, seminars, and training courses that enhance your skills and knowledge as an ADF member
Self-education expenses cover not only course fees but also books, travel, and equipment involved in furthering your work-related education.
Home Office Expenses
Home office costs are tax-deductible for ADF members if they need to perform some work tasks from a home office. These expenses may involve:
- Purchase of home electronic devices like computers, printers, and phones. Only devices costing below $300 are deductible.
- Depreciation or decline in value of home office appliances and devices costing $300 or more.
- Repair costs of home office fittings and furniture.
- A percentage of phone bills (including mobile) and phone rental if members can demonstrate that they are required to be ‘on call’.
- Running costs of the home office, including heating and cooling, internet, and electricity.
Only the work-related percentage portion of these costs are claimable. You can also use the 52c per hour fixed-rate or the 80c per hour shortcut method (available only from 1 March 2020 to 30 June 2021).
Expenses related to the dwelling or occupancy of your home are not tax-deductible. These costs include home insurance, apartment fees, rent and mortgage interest.
You can claim the portion of your compulsory mess subscriptions that is related to work activities. For reference, speak to the mess committee to obtain the relevant records.
Other mess functions like dinners, dances, and parties directly attributed to work duties are not tax-deductible, even if they are compulsory. Regardless of the vital role that functions can play in military duties and promotions, the ATO clearly dictates that they aren’t deductible on your tax return.
Overtime meal expenses may also be tax-deductible if you receive an overtime meal allowance, the allowance is separate on your income statement and you include the allowance on your tax return.
Physical Training Fees
As an ADF member, your physical training fees (eg. gym memberships and fitness courses) and fitness equipment are not typically tax-deductible, even if maintaining your physical fitness is a requirement of the job.
You may be entitled to claim a deduction for these expenses if you meet the following conditions:
- Your role requires a fitness level well above usual ADF standards, and
- High level strenuous physical activity is an essential and regular part of the work.
Examples of these ADF job roles are physical trainers and special combat forces – both positions requiring a much higher standard of fitness than other ADF personnel.
If your work role does not meet these requirements, your physical training expenses are not tax-deductible. Australian tax law regards maintaining a normal level of fitness for ADF service as a personal responsibility. Weight loss expenses are also not tax-deductible.
Extra Regimental Duties (ERDs)
Work-related expenses incurred during Extra Regimental Duties are tax deductible, according to the same rules as your general income.
Deductions on Defence Force Allowances
Australia’s military branches can grant allowances to its members for a range of reasons. As a general rule, all subsidies included in your income statement or payment summary must be recorded as income on your annual tax return.
Army, Navy or Air Force members commonly receive the allowances listed below. These allowances will be considered income for tax purposes, but you can also claim a deduction for related expenses depending on individual circumstances:
- flying allowance
- language proficiency allowance
- special action forces allowance
- uniform maintenance allowance
- vehicle allowance
Here is a list of ADF allowance deductions that you cannot claim. These allowances are given to compensate for dangerous working conditions and recognise the ADF member’s unique skills:
- post allowance
- arduous conditions allowance
- district allowance
- clearance diving allowance
- parachutist allowance
- flight duties allowance
- submarine escape training facility allowance
- field allowance
- service allowance
- hard-lying allowance
- isolated establishment allowance
- diving allowance
- common duties allowance
- trainee leader’s allowance
- special Royal Navy allowance
- seagoing allowance
- unpredictable explosives allowance.
- trainee’s dependant allowance
- submarine service allowance
Allowance vs Reimbursement For Tax Purposes
For Australian Defense Force organisations, an allowance is not the same as a reimbursement. If your employer pays you the exact amount you spent on eligible expenses, this payment is considered a reimbursement. You don’t need to declare reimbursements as income on your tax return, and you cannot claim tax deductions for reimbursed expenses.
On the other hand, an allowance is a general payment granted for a task or duty (e.g. vehicle allowance, uniform maintenance allowance). Expenses related to an allowance may still be tax-deductible, but this varies depending on the specific allowance. To claim deductions for expenses under an allowance, you must declare the allowance as incoming on your tax return.
Tax Offsets for Australian Defence Force Members
Tax offsets (or tax rebates) are amounts that can be directly used to reduce the tax payable on your taxable income. It is possible to reduce your tax payable amount to zero using offsets. However, if the offset amount is larger than the tax payable amount, you won’t receive the difference as a refund.
There are two types of tax offsets available to ADF members. These offsets are based on the member’s residential as well as work location.
Zone Tax Offset
ADF members who reside in an isolated or remote part of Australia may be entitled to claim a zone tax offset. A resident is a person who lives in an area for 183 days or more out of the tax year. If you have lived in the qualified zone less than 183 days during the year, but meet a few other conditions, you may still be able to claim the offset – check the ATO website for full details.
Refer to ATO’s list of Australian zones to determine whether your place of residence is considered an offset tax zone. If you work or stay in a remote zone but it isn’t your usual place of residence, you won’t be eligible for the zone tax offset.
Overseas Forces Tax Offset
If you worked overseas in your role as an ADF member during the tax year, you might be eligible to claim this tax rebate. The Overseas Forces Tax Offset is only available to service members who meet the following conditions:
- Your work income was not exempt from tax.
- You are not claiming the Zone Tax Offset for the same period.
- You must have served in an overseas location for 183 days or more
- If your service is less than 183 days, you can still claim a partial tax offset.
The Australian Tax Office has a dedicated zone and overseas offset page that provides more extensive information about tax offsets for those deployed overseas.
Australian Defence Force members are eligible for a full or half exemption from the Medicare levy charge if they have been entitled to free full medical care for the tax year.
Here are the conditions that should be met to access the full exemption:
- You are free from dependents. Dependents are defined as spouses (de facto included) and children under 16 years old. It also covers children under 25 who are studying full-time and have an independent net income of less than $1,786.
- You have a dependent spouse who is also an ADF member and is also entitled to free medical treatment.
- You have dependents, and they are required to pay the Medicare levy using their separate income.
- You have a spouse who must pay the Medicare levy and pays for your dependents’ Medicare levy.
- You have a spouse who is liable to pay the Medicare levy, and the spouse contributes to the maintenance of the dependent.
If you do not meet any of the above conditions but are still an ADF member for the whole of the relevant financial year, you can be exempted from half of the Medicare levy.
If your circumstances have changed during the financial year, you may still be entitled to a partial exemption – check with a tax advisor or the Australia Tax Office to confirm your eligibility.
Unless you are single and received full free medical care, have full private health insurance or fall below the income threshold, you will still need to pay the Medicare Levy Surcharge.
ADF Tax FAQs
Below are answers to common questions surrounding military tax deductions in Australia.
Is Australian Defence Force pay tax-free?
The general answer is “no”. Most ADF members are required by law to pay income tax based on salary, wages, and allowances earned for the income year. Income tax exemption may apply to ADF members deployed overseas on eligible duty in a specified area. This will require a certificate issued by the Chief of the Defence Force.
Is Army Reserve pay tax-free?
Pay and allowances for the Reserves are exempt from income tax if members only participate in part-time service or training. If you’re in the Reserves and perform full-time continuous service (even as a volunteer), you will need to pay tax on your salary and allowances.
Is ADF service allowance taxed?
As a general rule, service allowances that appear on the ADF members’ payment summary are taxable. However, some of these allowances may also be eligible for deductions. There may be allowances that are not taxable, but these figures will not appear on your payment summary and you cannot claim deductions related to these amounts.
Are haircuts for military tax deductible?
Haircuts and other hair grooming expenses are not tax-deductible because the ATO law views them as private expenses. Even though Australian Military Regulations require ADF members to follow guidelines on hairstyles, these expenses cannot be claimed on your tax return.
I live on base – what tax deductions can I claim?
In general, the costs of running a home office are not deductible if you live on base, even if you perform some work from home. However, in this scenario, you can still claim depreciation of personal equipment used to perform your Army, Navy or Air Force duties.
This article is provided as general information only and does not consider your specific situation, objectives or needs. It does not represent financial advice upon which any person may act. Implementation and suitability requires a detailed analysis of your specific circumstances.
Aaron is a Chartered Accountant with over 15 years experience in the accounting industry. Aaron has been able to provide advice around structuring, cashflow, tax compliance and working with clients to develop strategies.