small business counting money
13-Nov-2020 By - team

How much can you write off on your taxes?

Let’s be honest; no one loves tax time. You need to find and organise old receipts, make appointments with your tax accountant only to remember some items you have forgotten about. So when tax time rolls around, it makes sense that you’ll want to get the best return possible to make the whole ordeal worth your while.

It’s important to remember that claiming tax honestly is completely legal and worthwhile, but don’t get greedy. Over-claiming can lead to a letter from the ATO asking for reimbursement with a hefty fine slapped on… added for good measure. There’s also a good chance that it will cause the taxman to investigate your returns from previous years. To help you understand what you can safely claim to get the best return, we’ve found this handy list.

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Tax Tips for Tradies

CLAIM TOOLS AND EQUIPMENT

Any work-related tools or equipment that you use can be claimed as a deduction!

If the tools/equipment cost more than $300, you would have to calculate the decline-in-value (depreciation) amount that can be claimed for the year.

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.

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.

If you use your phone to make work calls, receive work calls or require your phone to be on standby for work, then you can claim on your phone bill.

Make sure you have a way to separate your private and work phone expenses; even if this requires keeping a second phone to conduct your business calls on.

Just remember to only 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.

VEHICLES

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.

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.

If you visit clients or pick up equipment/supplies for your job, the cost of your motor vehicle/public transport expenses are deductible. Do note that driving/public transport from home to your workplace and vice versa is not a deductible expense.

Do note that if you are driving your car for both work and personal use, you need to calculate how much of your usage is for work purposes, either through a logbook or the cents per kilometre method as follows:

Cent per KM method: You can claim up to 5,000 business km for 68 cents/km in your 2018-2019 tax return. This option does not require written evidence.

Logbook method: You can claim the percentage of most car expenses. However, you will need an official vehicle logbook stating for 12 weeks of the beginning and ending odometer reading. This will be used as a representation of your travel throughout the whole year and determine the percentage of motor vehicle expenses that you can claim.

Alternatively, if you travel less than 5000kms, you can 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.

WORK-RELATED CLOTHING

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:

  • protective clothing and footwear to protect you from the risk of illness or injury, or to prevent damage to your ordinary clothes, caused by your work or work environment. This type of clothing:
  • is made to cope with more rigorous conditions, where conventional clothing would be inadequate.
  • Is designed to protect you – for example, heavy-duty shirts and trousers, distinct from ordinary cotton drill trousers, shorts and short sleeve shirts that you might think are workwear but do not adequately protect you from the risk of injury or illness
  • has a density of weave which gives a UV rating sufficient to protect you from the sun where your job requires you to work outdoors.

Amongst the things you could claim are:

  • fire-resistant clothing
  • safety-coloured vests
  • steel-capped boots
  • gloves
  • hardhats
  • overalls
  • non-slip safety shoes
  • heavy-duty shirts and trousers such as rip-proof items of clothing made with heavy-duty mesh that are designed to protect you or items with reflective strips
  • Compulsory work uniform branded with the employer’s logo.
  • Sun protection costs including sunglasses and sunscreen if you work outdoors

LAUNDRY AND DRY-CLEANING

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:

  • $1 per load – this includes washing, drying and ironing – if the load is made up only of work-related clothing, and
  • Fifty cents per load if other laundry items are included.

EDUCATION

A range of courses, upskilling and education can be deductible if it is:

  • Less than 12 months
  • Paid in full before the end of the financial year
  • Relevant to your current job
  • Potential to claim payments as a tax deduction

To find out if you’re eligible and get an estimate on your deduction, check out the ATO’s handy guide to self-education expenses.

CLEAR THE DECKS

If you’re in business and have any obsolete, damaged or unusable materials left on your site at the end of the year, write-off the cost before the end of the year to claim a tax deduction.

Besides, if you have customers who can’t or won’t pay and you have done everything possible to recoup the debt without success, write it off by 30 June to claim a bad debt deduction. Make sure to record the write-off in the form of a Board Minute or other similar record.

Accountant At Work

Can I claim this item as a tax deduction?

A couple of simple “year-round” habits will make sure you don’t miss out on important tax deductions for tradies. That means you’ll improve your tax refund.

You may be able to claim something as a tax deduction if you answer “yes” to ALL of the questions below:

  • Is it directly related to your work or required for your work?
  • Do you have a proper receipt, invoice or bank statement to prove the purchase of the item?
  • Did you pay for it yourself?
  • Was it not part of an allowance?
  • Was I not reimbursed for the cost by anyone else (and not reimbursed by a company)?

Only claim real items – fake tax claims are now a serious risk.

The ATO can spot fake or “inflated” tax deductions from miles away. They are incredibly good at this, and they’re getting better at it. Powerful new tools help to check up on taxpayers, and they can check your “private” details – including bank account transactions. It’s important to claim real deductions only – items you paid for and that are directly related to your work.

If you are caught out claiming items you didn’t pay for, that your company paid for, or that you can’t prove with a receipt, the result can be painful: The ATO will demand pay-back, and they might investigate your tax returns from previous years as well.

How to maximise your tax refund?

The Australian Taxation Office has billions of dollars in their kitty to hand back to taxpayers. All you need to do to improve your refund is to think a little creatively. The ATO is equipped to detect an undeclare wage, bank interest, share dividend or any other income. Unfortunately, it has no way of informing you about a forgotten deduction for work-related expenses, investment costs or other items.

Claim All The Deductions You Can

Tax deductions are the single easiest and the most prevalent way to get a higher tax refund is to claim a deduction for every expense that is work-related and that your employer has not already reimbursed you for, you are legally entitled to. These expenses include:

  • Vehicle and travel expenses – including travel between work and home
  • Clothing, laundry and dry-cleaning expenses
  • Mobile phone, internet and home phone expense
  • Overtime meals
  • Self-education expenses
  • Tools, equipment and other equipment
  • Other work-related deductions

Save Your Receipts

At tax time, we spend hours tracking down receipts for purchases made over the last 12 months. This is not only a waste of time but also a probable loss of hundreds or even thousands of dollars in a tax refund. So, grab folders, label them and save every relevant receipt.

  • Whenever you make a work-related expense, keep your receipt and put it in your tax folder.
  • If you work from home, even only occasionally, save invoices of the phone, power, water, internet and office supplies. And be sure to keep a diary about how much time you spend working at home.
  • Invested in a property? Keep the receipts of your payments.
  • Donated to a charity? Put the receipts into a folder.
  • Driving for a work meeting? Write down your dates and mileage in a logbook or diary, don’t include to-and-from home.

If you aren’t sure whether an expense is deductible or not, save that too! Your tax consultant should be able to advise you.

Make Charitable Donations

Lower your tax bill and assist a good cause at the same time! A donation of $20 to a charity or $10 on a book might not seem like much at a time, but each of such small purchases across 12 months can add up to hundreds of dollars. You can claim a deduction for anything over $2. Just be sure to save the receipt!

Prepay Your Bills

While it’s more convenient to pay your bills weekly or monthly, it’s better if you can pay some bills like union fees and professional subscriptions in a lump sum. Since you claim a tax deduction this year for expenses which wholly or partly relate to next year, it will not only help you reclaim these expenses earlier, but you will also receive a higher refund in the current year.

Put Money Into A Super Fund

This is especially beneficial for couples where one member is either not working or earns less than $40,000, inclusive of super contributions and fringe benefits, can use super contributions to reduce the tax paid by the other partner.

The partner having a higher income can contribute up to $3000 to the non-working partner’s super fund and claim a tax offset of 18 per cent, which equates to $540.

Those working on low wages can also put extra money into their super, and for each $1 contributed to super, the government will contribute 50 cents. Anyone earning up to $52,000 can benefit if they put extra money into super.

Rent

Rent is deductible if you are renting premises. If you are working from home and have a mortgage, it could be tempting to claim a portion of your mortgage as rental expenses. However, this is not recommended as if you do so, and you may have to pay capital gains tax (CGT) if you sell your house in the future.

Sell Off The Loss-Running Investments

If you have earned from investments or have sold some shares, you’ll have to pay some tax on them. The best way to minimise the tax amount is by getting rid of any assets that are sitting at a loss. The “capital loss” can be offset against the “capital gain”. But be careful if you plan to sell shares sitting at a loss and then buy them back in the new tax year as the ATO had issued a tax ruling to cancel any tax benefits in such situations and apply appropriate penalties.

Review Your Health Insurance

Health insurance companies have announced price hikes from 1 April 2018, as well as changes to the services that are covered under the policies. So, if you haven’t already, it’s time to check what illnesses and services you’re covered for, whether it’s worth being covered at all or whether you should change insurers. If you are to claim the private health insurance premium as a tax offset when you lodge your tax return, it makes sense to make it worthy.

For most tradies, there are heaps of items you can claim, so there’s just no need to take risks and get in trouble. Plus, taxes run our amazing country, pay for schools and motorways and hospitals, so we should all pay our share. The best way to boost your tax refund is to keep your tax receipts and notes about expenses.

 

 

 

DISCLAIMER
THIS WEBSITE CONTAINS GENERAL ADVICE ONLY AND IS NOT PERSONAL FINANCIAL OR INVESTMENT ADVICE. ALSO, CHANGES IN LEGISLATION MAY OCCUR FREQUENTLY. WE RECOMMEND THAT OUR FORMAL ADVICE BE OBTAINED BEFORE ACTING ON THE BASIS OF THIS INFORMATION. INFORMATION CONTAINED HEREIN HAS BEEN SECURED FROM SOURCES EWM ACCOUNTANTS & BUSINESS ADVISORS BELIEVES ARE RELIABLE, BUT MAKE NO REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OF SUCH INFORMATION AND ACCEPT NO LIABILITY. WE SUGGEST THAT YOU CONSULT WITH A TAX ADVISOR, CPA, FINANCIAL ADVISOR, ATTORNEY, ACCOUNTANT, AND ANY OTHER PROFESSIONAL THAT CAN HELP YOU TO UNDERSTAND AND ASSESS THE RISKS ASSOCIATED WITH ANY INVESTMENT.

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