It’s well worth the effort to keep track of your expenses and to record your receipts. With a bit of forethought, it doesn’t take much to keep on top of things. A few minutes a day could reap the ultimate reward – starting with your hip pocket.
Whether you’re an apprentice or a sole trader, there is a range of tax benefits that tradies can make.
People who work in a trade such as builders, plumbers and electricians, to name a few, often pay for work-related expenses out of their own pockets. And when you’re working long hours or busy meeting deadlines, it doesn’t leave you much time or energy to think about your taxes.
Unfortunately, this means many tradespeople end up paying too much tax and miss out on hundreds (and in some cases thousands) of dollars worth of claimable expenses every year.
Many tradie business owners find themselves working overtime, which often leaves tax as the last thing on their mind. Unfortunately, this means many business owners in construction, building, electrical, and more end up paying too much tax and miss out on hundreds of dollars’ worth of claimable expenses every year.
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Here are some common tips on tax deductions for business owners in the industry.
You’ll be able to claim a range of tax benefits even if you’re not the boss, providing your employer hasn’t reimbursed you, and you can prove that you’ve incurred the expense and that it directly relates to your job.
You’ll be able to claim expenses as a small business. If you’ve spent money on your business, or to get more business, you’ll be able to make a range of tax claims for those types of professional services.
Nobody likes completing a tax return, but you have to do it, so you might as well get yourself the best possible outcome by claiming everything you’re entitled to. Here’s H&R Block’s guide to the top tax tips for tradies:
You probably use a variety of tools every day, and the rule is that if you’ve paid for them and you use them as part of your job or business, you can claim them as a deduction against your tax.
Exactly how you do that depends on whether you run your own business or work for someone else.
If you run your own business, you can claim a deduction straight away for the cost of all tools costing less than $30,000 (if acquired after 2 April 2019, before that the cost limit was $20,000 up to 29 January 2019 and $25,000 between 29 January 2019 and 2 April 2019).
For most self-employed tradies, that means that pretty much all your tools can be written off straight away against your taxable income.
If you’re employed by someone else, the rules are less generous. You can claim a deduction straight away for tools costing $300 or less, but if the cost is more than $300, you’ll need to write off the cost over the life of the tool, which could be several years. Take care if you purchase a set of tools – you can’t claim each tool individually so unless the cost of the set is less than $300, you’re looking at writing off the cost over a few years.
GST credits are offered for the cost of tools, equipment or assets purchased to operate your business. For an item that costs up to $300, an immediate deduction can be claimed. Where the cost exceeds $300, you can claim a deduction on the item’s decline in value.
Cars and utes, drills, electric sanders, electric saws, grinders, leaf blowers, lawnmowers, nail guns, ladders, tool boxes, work lights, high-pressure water cleaners, concrete mixers, computers, laptops and tablets are a small example of the tools required on the job. Tradies also may be able to claim the cost of additional items, such as masking tape, oil, replacement belts and drop sheets, amongst other replaceable.
Tradies need more tools than the average occupation to do their jobs. The cost of tools bought, repaired or cleaned are tax deductions. Tools can be written off instantly or depreciated over time.
Tools bought under $300 can be claimed as an immediate deduction, while costs over $300 will need to be depreciated.
Employee tradies can claim the cost of their tools as long as they incurred the cost themselves. Sole traders can claim the cost of tools and also claim the instant asset write off for larger items.
It’s not just tools you claim either – the same rules apply to items of equipment for the office like computers, phones and printers as well as mobile phones and tablets.
Just remember only to claim the work or business use part of the cost. If you use the tools or equipment for private use, you’ll need to apportion the cost.
You can also claim the cost of a vehicle, such as a van or a ute, which you use in your business or for your job, provided you paid for the vehicle (so there’s no deduction for work-provided vehicles).
If you run a business, you can use the same $30,000 instant write-off tax break outlined above, provided of course the vehicle costs less than $30,000 (as many second-hand vehicles do). If it costs $30,000 or more, you’ll need to write it off over the life of the vehicle.
Vehicle purchases and costs associated with operating your vehicle are claimable when you can prove they are for business purposes (and you don’t receive a car allowance). Under the logbook method, you need to show odometer readings for at least 12 continuous weeks. Mileage tracking allows you to claim the percentage of vehicle expenses apportioned to business use, including running costs and depreciation.
Under the cents per kilometre method, you can claim $0.66 per kilometre on up to 5000 kilometres of business travel. Either way, you need to track your mileage, which you can do easily and automatically with software like QuickBooks Self-Employed.
If you’re an employee, you can claim depreciation on the vehicle over its life, but only if you keep a logbook of your work/private use. Your logbook can also be used to work out your various other work-related vehicle deductions, such as the cost of fuel, servicing, etc.
Alternatively, if you travel less than 5000kms, you can simply claim a set 68c/km allowance for every business km travelled.
Remember, you can’t claim for the costs of travelling from home to work in your vehicle unless your employer requires you to transport heavy tools which can’t be stored at work.
If you buy certain protective clothing or items for your work, such as hard hats, sunglasses or steel-capped boots, you can claim them as a deduction. This also applies to occupation-specific clothing needed to distinguish you from the public, like a uniform.
Suppose your work requires you to wear either a compulsory uniform or protective clothing to keep you safe (or to protect the normal clothing you wear underneath). In that case, chances are you’ll be able to claim a tax deduction both for the cost of purchasing the item and the cost of getting it periodically laundered or dry cleaned.
Look out for the following commonly claimed items by tradies:
Amongst the things you could claim are:
You can even claim GST credits on costs associated with cleaning your work clothes. If this expense exceeds $150 and other work-related expenses total more than $300, you need to provide receipts. Otherwise, a reasonable basis for calculating your laundry or dry cleaning deduction is $1 where the whole load is work clothes or $0.50 where it is partially work clothes.
You can claim the costs of washing, drying and ironing eligible work clothes, or having them dry-cleaned.
If the total amount of your laundry expenses are $150 or less, and your total work-related expenses are $300 or less, you don’t need to provide written evidence for your laundry expenses. Instead, for washing, drying and ironing you do yourself, the ATO allows you to use the following amounts to work out your laundry claim:
Travel expenses, such as meals, accommodation, flights or taxi fares, are deductible if you can show receipts and have not been reimbursed or given a car allowance. If your vehicle is under a novated lease, your employer is eligible to claim vehicle expenses.
Employee Tradies may be able to claim the cost of travel between home and work, as they don’t have a regular place of business, as is the nature of their job. If items over 20kg are transported in order to complete the job – such as ladders, concrete mixers, heavy tool-boxes filled with equipment – and there is no secure location to store the equipment, these costs can be claimed as car expenses.
To claim these car expenses, you’ll need to keep a logbook and record your work trips. If your vehicle is not considered a car, for example, you drive a ute or panel van with a carrying capacity of one tonne or more or can carry nine or more passenger such as a minivan, and you’ll be able to claim the work-related portion of fuel, oil, insurance, repairs and servicing, car loan interest, registration and depreciation. You cannot use the cents per kilometre method for these expenses, so you’ll need to keep a logbook as well as records of your receipts.
Any training courses, licences or certifications you undertake to maintain or improve your skills, or that certify you to perform a task for work are tax-deductible. Courses that are not generally related to your work or new employment are not eligible.
You can claim any union fees or subscriptions to trade, business or professional associations. Most unions provide members with a statement of fees or subscriptions paid, which you can use to prove your association in your return.
When you pay for work-related phone or internet expenses, include the cost in your return. If you plan to claim more than $50, you will need to determine the percentage related to work use over a four-week representative period, which can then be applied to the full income year. Records can be kept in the form of diary entries, electronic records, or bills.
Whether you’re looking for Business Accounting Services, or need a start-up business accountant to set up your books, we are here you can rely on.
Costs related to lodging your tax return are deductible as well. This includes your accounting software, tax agent fees, any travel to tax advisors, appeals to court in relation to tax affairs or interest charged by the ATO. These costs are considered to be incurred in the year they are paid.
Every business is different, as is every tax return. But to maximise your deductions and save this financial year, you must understand what you’re eligible for. If you’re still unsure, speak to an expert advisor.
The ATO sets out the criteria for self-education expenses; generally, they are deductible when the course you undertake leads to a formal qualification and meets the following conditions.
The course must have a sufficient connection to your current employment and:
The ATO has various publications on what you can deduct. Generally, they list the following expenses which you can claim as a deduction for self-education:
The type and amount of deductions will very much depend on your circumstances and the work you do. This will also depend on your work arrangement with your employer, i.e. whether you are employed on ABN or TFN. Generally, the following is a list of deductible expenses according to the ATO:
The ATO requires taxpayers to keep source documents as evidence of the expense you paid. These source documents may include tax invoices/receipts of payments or Diary or logbooks for travel.
The ATO will only allow the deduction if you paid for it, however, if your employer paid for it or you received it as part of an allowance or if you paid for it and your employer reimbursed you, you will not be eligible for a deduction.
There are plenty of tax management options available to tradie business owners. However, if you are looking to manage your cash flow better to be more confident in the choices you make as a business owner, you should take a more in-depth look into your budgeting.
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