Employee Contractor

The things Tradies can claim Tax on.

Tradies work long and hard to meet tight deadlines, which often leaves little time or energy to think about finances and taxes.

As a result, many tradespeople pay too much tax, miss changes in legislation or suddenly find their cash flow is not as healthy as they thought.

Your job as a tradie can take you far and wide and often involves long hours of hard work. The last thing you want to do at the end of the day is to think about taxes, but that could be costing you hundreds, if not thousands of dollars, that you could otherwise recoup come tax time.

With tax time here, it’s time to start thinking about what you can and can’t claim in your tax return. The Australian Taxation Office (ATO) has shared these handy tips to help employee tradies tackle some common claims in their industry.

Trying to find the time to sift through all of the paperwork, summarise your expenses and find that long-lost email from 11 months ago can feel impossible – and it’s easy to lose track of what actually makes a difference on your return and what doesn’t.

But, if you get your deductions right, you could save yourself some serious cash. When it comes to doing your taxes, you’re already off to a good start if you currently hold private hospital health cover. Why? Because if you earn over a certain amount and don’t have private hospital insurance, you could be charged the Medicare Levy Surcharge (MLS), which is an extra 1-1.5% tax. 

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.

Claiming a tax deduction for the cost of purchasing tools and equipment that you have used throughout the year to earn your income doesn’t have to be a nightmare anymore. Online Tax Australia can help you with any questions and advice with regards to what and how to claim these deductions.

Keep in mind that some tools and equipment may be used for both business and personal expenses. Apportioning the claimed amount is then required to reflect the accurate expense claim. For example, if you purchase a new laptop and use it for work and at home, you adjust your request to remember how much you use the computer for work-related purposes, and how much it is used for private purposes.

Tools and equipment costing more than $300 cannot be expensed in one claim as the costs need to be claimed progressively over the useful life of that asset (this is known as depreciation).

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.

Employee Tradie

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.

Sole traders

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.

Choosing the Right Accountant

Tax Deduction for Tradies 

Protective clothing

Tradies need protective clothing to do their jobs. Safety items such as high-vis vests, hard hats, gloves and eye-wear are all claimable, as is the cost of cleaning, repairing and replacing uniforms. If you work out in the sun, you’ll be able to count sunscreen and hats on your claimable list.

The ATO allows $1 per load to launder work clothes if washed separately or 0.50 cents a load if washed with personal clothing. It pays to keep a logbook to track these sorts of expenses – they do add up.

Things Every Tradie Can Claim On Their Tax

Working from home expenses

Many of us have been working from home for a chunk of 2020, and although there are many benefits (hello, track pants), it’s likely you’ve racked up some home office expenses. To help, the government has set up a shortcut to claiming deductions, which will give you 80 cents back for each hour you worked from home between 1 March 2020 – 30 June 2020.

Income Protection

Whether you’re forging a career, buying a home, getting married or starting a family, it’s important to think about protecting the things that are important to you. Not only can income protection guard you if the unexpected does happen, but it’s also generally tax-deductible.

 

Sunglasses and sunscreen

If you work outdoors, it’s important to protect yourself from the sun’s rays – and the ATO agrees! If you are someone who regularly works in the sun, the ATO allows you to claim the cost of sunscreen and sunglasses.

Donations

We all try to help out where we can and if you made a charitable donation of $2 or more during the financial year, you can claim a tax deduction on your return.

It’s a good idea to keep a record of all tax-deductible gifts and contributions made – it will make claiming just that little bit easier.

Running a car or ute.

What you can’t claim

This is something that trips up a lot of trades – you can’t claim travel expenses between your home and worksite. That includes side trips like dropping off the kids at school or picking them up.

There’s also a clear difference between what the ATO defines as a ‘car’ and what it terms as a larger vehicle. It’s important to get this right because what type of vehicle you have relates to what you can claim.

What you can claim

If your vehicle fits these categories:

  • One tonne or more, such as a ute or panel van
  • Designed to carry nine passengers or more

You can claim a proportion of expenses (fuel, oil, insurance etc.) for what you use specifically for work.

Note that, according to the ATO, you can’t use the cents per kilometre claiming method for these larger vehicles, so keep all your receipts.

According to the ATO, you’re entitled to claim your car-related expenses for using your own car to perform work duties such as:

  • Carrying bulky tools or equipment (such as an extension ladder or a cello) that your employer requires you to use for work and there is no secure storage available at work
  • Attending work-related conferences or meetings away from your normal workplace, delivering items or collecting supplies
  • Travelling between two separate places of employment, but not if one of the places is your home (for example, when you have a second job)
  • Travelling from your normal workplace to an alternative workplace (that isn’t a regular workplace) back to your normal workplace or directly home
  • Travelling from your normal workplace or your home to an alternative workplace that is not a regular workplace – for example, a client’s premises
  • Performing itinerant work.

You can also claim tax deductions if you share your car or rent your car using a car-sharing service; this includes full program membership fees, plus expenses such as registration, insurance, servicing, cleaning, depreciation and fuel. 

Of course, it’s equally important to know what you can’t claim, with many people thinking that just using their car to get to work is a tax-related expense.

Another common ‘mistake’ people make is claiming tax deductions from the ATO for things without providing proof, such as carrying equipment where your employer does not require it.

If you can’t prove your employer requires this or there’s no safe place to store your equipment at work, then it’s not claimable.  

The ATO will also pounce on anyone claiming expenses associated with a company car or car purchased on a novated lease which has already been paid for by your employer through expenses or salary sacrifice. In short, don’t double-dip!

Tools and other equipment

What you can’t claim

The big thing here is that you can’t claim expenses for tools and equipment that you use privately.

You also can’t claim for tools provided to you by your employer or another person.

When it comes to tool costs if it’s more than $300 (and you paid for it) you can claim the cost of the tool over a number of years (taking in depreciation).

But if the tool costs less than $300, you can claim a deduction for the whole cost upfront.

What you can claim

Here’s where it gets interesting.

If you can prove that you use your tools both at home and on the job, you can claim expenses for the proportion of their professional use.

What does that mean? Well, if you use your tools 50 percent of the time on site and 50 percent at home, you can claim 50 percent of the expenses for those tools. It’s important you can prove to the ATO that this is the case.

You can also claim the cost of tools that you need to use for your job.

 Record Keeping For Tradie Business Owners

In order to claim a tax deduction, you must be able to show:

  • That you spent the money
  • What you spend on it
  • Who the supplier was
  • When the purchase occurred

Bank or credit card statements usually don’t contain this information.

If your work-related deductions are more than $300, you must have records to support your claims. Records are usually a receipt from the supplier of the goods or services.

The receipt must show:

  • Name of supplier
  • Amount of expense
  • Nature of goods or services
  • Date the expense was paid
  • Date of the document

These records should be kept for a minimum of five years after you lodge your tax return.

Keep records of all your actual expenses as evidence of your claims, as well as records that show how you calculated your work travel as a percentage of your overall travel. While it is not a requirement to keep a logbook, it is the easiest way to show how you have calculated your work-related use of the vehicle. You cannot use the cents per kilometre method for these vehicles.

No matter what your expenses were, you won’t be able to make a claim at all, whether or not you’re an employee or a sole trader, if you don’t keep a record of them.

SMSF

To keep up to date with receipts, use an app and record your receipt as soon as you get it so you won’t forget later.

You’ll need to be able to prove that you spent the money, what you spent the money on, who the supplier was and the date of purchase. Keep your receipts. Bank statements alone do not contain enough information for the ATO to legitimise your expense.

If your expense was over $200, you must have the records to prove your claim; otherwise you won’t be able to claim. Receipts must show the name of your supplier, the amount of the expense, the nature of the goods or service, the date the expense occurred and the date of the document.

After you lodge your tax return, you must keep your records for five years.

 Keep it real!

The ATO are very good at spotting fraudulent or inflated claims and they’re getting better all the time. Powerful tools can check up on you, even your “private” details such as bank transactions. The consequences of being caught out can put you and your finances in hot water – so keep it real. Only claim for items you paid for and that are directly related to your work.

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 deeper look into your budgeting.

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