We know – the mere mention of tax can make anyone’s head spin, especially when we start talking about marginal tax rates. However, understanding tax is something we all need to get on top of because, like it or not, taxes are here to stay.

The good news? Once you get it, it’s much easier to see where your money’s going.

So, in this episode, we're excited to sit down with award-winning accountant Natalie Lennon to clear up some of the confusion. We cover the essentials, from marginal tax rates to tax on investments. After this chat, our hope is you will be a bit more prepared to understand your own taxes.

During this episode, we also touch on claiming working-from-home expenses, including occupancy costs. The ATO website has some examples to get you started. But as always, we recommend speaking to a registered tax accounts to get tailored advice specific to your financial situation. They can also help you stay on top of any changes to the tax rules and the general information we’ve shared here.

How do marginal tax rates work?

In Australia, our tax system is progressive, meaning the more you earn, the higher the percentage of tax you pay on each additional dollar. But – and this is where the confusion often starts – it’s important to know that these tax rates apply in layers. For example, you don’t pay the highest tax rate on all your income, just on the portion that falls into that top bracket.

To give you a practical picture: up to $18,200, you pay no tax at all in 2024-25 financial year. From there up to $45,000, you’re paying 16 cents for every dollar. It scales up as your income increases, but only the income within each bracket gets taxed at that specific rate. Most Australians end up with an average tax rate somewhere around 25%, though this varies depending on how much you earn.

Here are the marginal tax rates in the 2024-25 financial year, as per the Australian Taxation Office (ATO) website:

Source: ATO

You don’t pay separate tax rate on a second job

One common misconception we often hear is that getting a second job will push you into the highest tax bracket and, as a result, you'll lose more money to taxes. But that's not quite how it works. The income from your second job is simply added to your total earnings. And you only pay the higher rate on the portion that falls above the threshold.

For the 2023-24 financial year, that top threshold was $180,000, but it’s bumped up to $190,000 for the current 2024-25 financial year. So, if your total income exceeds $190,000, only the dollars above that amount are taxed at the highest rate of 45%, in addition to the 2% Medicare levy.

We know – nobody’s really excited about paying their taxes. But even though the marginal rates can seem steep, remember this: paying more tax generally means you’re making more money. And more money coming in generally means more opportunities to invest and grow your wealth.

And yes, anything that concerns paying taxes can be a bit much to digest. But there are tools out there to help. For example, the ATO has tax calculators in their website where you can plug in your details and see exactly what your tax obligations might look like. It’s useful if you’re trying to plan ahead or understand the impact of any recent changes, like the new marginal tax rates in the current financial year.

Can you actually claim tax deduction on a handbag?

One popular question we've seen pop up is whether you can claim a tax deduction on a handbag. It might sound a bit out there, right? But the short answer is, yes, you can – with some important caveats.

First off, while you can claim handbags and other items for deductions, it's important to remember that you're not getting the full amount back. What actually happens is that you get a reduction in the tax you owe by a percentage of what you spent, based on your marginal tax rate.

Let's say you buy a $100 handbag, and you're in the 25% tax bracket scenario. When you claim that handbag as a deduction, you're not getting $100 back in cash. Instead, because your tax rate is 25%, you save 25 cents in tax for every dollar you spent on that handbag. That means you’ll reduce your tax bill by $25.

Deduction Amount : $100

Marginal Tax Rate : 25%

Tax Savings : $100 * 0.25 = $25 subtracted from your total taxable income

Just to illustrate, if your average tax rate is 25%, you’d get $25 off your tax bill for that $100 handbag. So, it’s not a one-for-one deal – you’re just reducing the tax you owe by a percentage of what you spent.

Now, before you run out to buy that new handbag, it’s important to note that the handbag must be used exclusively for business purposes. That means you’d have to be able to justify that you use it to carry items like a laptop, notebook, or other work-related materials.

And if you’re thinking of claiming a handbag, just be aware that the ATO might raise an eyebrow if you’re trying to claim a $10,000 bag as a business expense. You’re more likely to make a successful claim on a reasonable, functional bag that’s clearly for work.

You can’t claim $300 in tax deduction for each work-related item

You might’ve heard that you can claim up to $300 in work-related expenses without needing a receipt. That’s true, however, it’s not $300 per category – it’s $300 total across all your deductions. So, you can't claim $300 for tools, another $300 for stationery, and another $300 for uniforms without receipts. It’s a cumulative cap, and even then, you should be ready to explain what that $300 covers if the ATO asks.

Having said that, if your total work-related expenses exceed the $300 rule, you’ll need to provide receipts or other forms of substantiation for all your claims, not just the amount above $300. It’s important to note, though, that this rule is specific to work-related expenses. It excludes categories like car, meal, and travel allowances, which have their own rules.

What about mixed-use assets (items for work and personal purposes)?

Speaking of cars, they are not typically lumped together with other general work-related expenses. And the way you claim deductions for car expenses differs from other types of deductions.

Tolls, for instance, can be claimed if they’re work-related. But they’re categorised as travel expenses, not motor vehicle expenses.

When it comes to claiming for your vehicle itself, there are two main methods: cents per kilometre and the logbook method. The cents per kilometre method is straightforward – you can claim up to 5,000 kilometres at a set rate (currently 85 cents per kilometre for the 2025 financial year). But remember, you still need to prove how you calculated those kilometres.

The logbook method, while more detailed, could offer a larger deduction if your vehicle is heavily used for work. You’d need to keep a logbook for 12 weeks, tracking every work-related trip, and then apply that percentage to your vehicle’s expenses like fuel, insurance, and depreciation. It’s more effort, but it could be worth it depending on your circumstances.

To make sure you're getting it right – and not leaving money on the table or risking an audit – we always recommend checking in with a financial adviser or tax accountant. They’ll help you properly apportion your claims and give you peace of mind that everything’s above board.

Tax deduction tips if you are working from home

If you’re working from home, there are some nice tax deductions that might apply to you. But like everything in the tax world, it’s all about the details.

First up, if you’ve got a separate room that you’re using solely as an office – no bed, no extra furniture, just work stuff – you can claim a portion of your rent. The ATO lets you work out the percentage of your home office’s floor space compared to your entire house or apartment, and that percentage is what you can claim on your rent. You can also claim a percentage of your electricity, water, internet, and any office equipment like desks or chairs.

Now, if you don’t have a separate room, don’t worry – you can still claim using the fixed rate method (52 cents per hour) . Here, you calculate how many hours you’re working from home and multiply that by the ATO’s set rate.

What if you want to claim a bigger work space in your home?

It’s possible, and it’s really about what works best for you and your household. Remember, though, double-dipping isn’t allowed. So, you’d need to split the claim based on the percentage of the room used.

It works the same way for home internet, too. For instance, if you’ve got a large household, like five kids using the internet, the ATO might not allow you to claim a high percentage for internet costs.

Apart from that, the general rule is to keep track of what you’ve bought and talk to your accountant about what’s deductible. Even if you’re unsure whether something can be claimed, just include it in your summary and ask. The worst they can say is “no.”

Can you claim a coffee machine for home office?

Unfortunately, the answer is no. Even if you’re working from home all day and that coffee machine feels essential, the ATO draws the line there. Unless you’re a barista running a café from your living room, that expense doesn’t make the cut.

How about content creators filming around their home? Can they claim the entire place?

While content creators might argue that their entire space is a work zone, the ATO might not see it that way. The ATO doesn’t currently accommodate the unique situations of content creators, who fall under the broader category of performing arts. But if you compare, their deductions look nothing like those of traditional performing artists. There’s been some discussion around updating these rules to better reflect the reality, but for now, we have to operate within the existing framework.

Natalie Lennon’s tips for managing tax on shares/ETFs (for first-time investors)

The first thing you need to do is make sure your Tax File Number (TFN) is registered with your investing platform or directly with the companies we’ve invested in. Why? Because once your TFN is registered, all the relevant information – like dividends and interest – automatically flows through to the ATO. So, if you’re doing your own tax, it’s already pre-filled, saving you a lot of time and reducing the chances of making errors.

With that said, it’s also worth noting that waiting a bit longer after July can make this process even easier. It gives the ATO time to process all the data, which makes it easier for your tax return to be completed accurately.

Now, if you’ve been busy buying and selling shares, another tip is to keep a summary of the transactions. It not only simplifies things but also makes it more cost-effective when we do hand things over to an accountant. Without a summary, your accountant will need to spend extra time (and you’ll spend extra money) going through all the paperwork and adding everything up.

Speaking of which, it’s not much fun paying someone to help us pay tax on a tiny dividend, like a measly 4% return. That’s where portfolio tracking tools like Sharesight can be a lifesaver. Tash mentioned using Sharesight, and from her experience, it’s been quite helpful in managing her investments. Natalie didn’t report any issues with it either, and she’s noticed that quite a few of her clients use it too.

General ideas for doing tax returns

When it comes to wrapping up your tax return, there are a few key points Natalie shared that we think are worth keeping in mind.

First off, if there’s anything you’re uncertain about claiming, it’s better to put it down and run it past your accountant. We all know that old saying: “If you don’t ask, you don’t get.” And that applies perfectly here.

Natalie also mentioned that in her practice, they use electronic questionnaires to help clients cover all bases. They send out forms to know more about your work situation – like whether you worked from home and how your setup looks. But remember, your accountant can’t help if you don’t provide all the details. So, communicate openly about your situation, from your family setup to any changes in your work environment.

That being said, she advised holding onto receipts and maintaining summaries of your expenses. And if you have an Australian Business Number – even if it’s just for a side hustle – opening a separate bank account will make tracking your income and expenses much easier.

Final thoughts

That’s a wrap on this episode! If you found this chat helpful, please give us a five-star rating, write a review, or share it with a friend. For those new to investing, check out our first 10 episodes. And follow us on Instagram at @getrichslowclub , @tashinvests or @anakresina for more tips and updates.

Happy investing!

Tash & Ana