Tradies Tax Advice
If you’re a tradie, this blog post is for you. We’ll help you meet your tax obligations and stay in compliance with the law. We’ll also answer common questions about taxes. So if you’re looking for information on how to file a tax return, what deductions you can claim, or how to pay your taxes, read on!
If you’re a tradie, it’s important to make sure your tax situation is in order. Here are some tips to help you get started. First, make sure you’re keeping track of your expenses. This includes anything from materials and tools to transport and accommodation costs. Next, be sure to claim all the deductions you’re entitled to.
This could include things like home office expenses or car expenses. Finally, always speak to an accountant if you have any questions or need help getting your tax return ready. They can offer specific advice tailored to your situation. By following these tips, you can ensure that you’re paying the right amount of tax and that you’re taking advantage of all the deductions available to you.
Tax & Deduction Claims for Tradies
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:
Claim Tools And Equipment
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 may be able to claim an immediate deduction for the cost of all the tools you purchase during the 2021 and 2022 years, under the temporary full expensing measures.
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. Also, 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 equipment items for the office like computers, phones and printers, and 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 running 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 also use the temporary full expensing measures mentioned above to claim a deduction for the full cost of the vehicle. If the vehicle is a passenger car (that can transport less than 9 passengers) or a ute with a payload of less than 1 tonne, this will be subject to the car limit ($59,136 for the 2021 year, $60,733 for the 2022 year)
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 5000 km, and the vehicle is a passenger car (that can transport less than 9 passengers) or a ute with a payload of less than 1 tonne, you can simply claim a set 72 c/km allowance for every business km travelled.
Remember, you can’t claim the costs of travelling from home to work in your vehicle unless your employer requires you to transport heavy tools that can’t be stored at work.
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, the 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.
- It 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 the 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
- 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 is $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
- 50 cents per load if other laundry items are included.
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 in order to claim a tax deduction.
In addition, 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 in order to claim a bad debt deduction. Make sure to record the write-off in the form of a Board Minute or other similar record.
Two tips for making your taxes easy:
- Keep good records, including invoices and receipts. It makes completing your tax return easier and ensures you can claim for everything you’re entitled to.
- Consider using a tax agent like H&R Block. Tax is complicated, and an agent can ensure you get it right.
Buying Assets For Your Small Business
If you own a small business, you can immediately deduct the business portion of the cost of eligible new or second-hand depreciating assets purchased for your business from 7.30 pm AEDT on 6 October 2020 until 30 June 2022 – see Temporary full expensing.
For assets purchased before this period, you can immediately deduct the business portion of the cost of eligible new or a second-hand depreciating asset where it costs less than the relevant threshold amount – see Instant asset write-off.
Temporary Full Expensing
The temporary full expensing measure allows eligible businesses with an aggregated turnover under $5 billion to immediately deduct the business portion of the cost of eligible depreciating assets.
The assets must be first held and then used or installed for a taxable business purpose between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.
Small businesses can immediately deduct the business portion of the cost of:
- an eligible new or second-hand depreciating asset
- Improvements to an existing asset if the improvement costs are incurred between 7.30 pm AEDT on 6 October 2020 and 30 June 2022.
- Suppose you have a small business pool and choose the simplified depreciation rules. In that case, you must deduct the balance of your small business pool under temporary full expensing at the end of your income years ending between 6 October 2020 and 30 June 2022.
Instant Asset Write-Off
If temporary full expensing doesn’t apply to an asset, you may still be able to apply the existing instant asset write-off.
For each asset first used or installed ready for use between 12 March 2020 and 30 June 2021 and purchased by 31 December 2020, the instant asset write-off threshold amount is $150,000. In addition, eligibility extends to businesses with an aggregated turnover of less than $500 million.
You can claim a deduction for each asset first used or installed ready for use, costing less than the relevant threshold amount. However, the instant asset write-off eligibility criteria and thresholds have changed over time, so make sure you check the eligibility criteria for your business.
This deduction applies to most assets for a small business, whether the asset you bought is new or second-hand.
You claim the deduction in your tax return in the year the asset was first used or installed ready for use.
Can I Claim This Item As A Tax Deduction?
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?
- It was not part of an allowance?
- I was not reimbursed for the cost by anyone else (and not reimbursed by a company)?
Not sure? Talk to your tax agent about it and be honest with them. Their job is to help you with this! (Etax.com.au is a registered agent, and we help thousands of tradies every year.)
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. So 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.
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 and pay for schools, motorways, and hospitals, so we should all pay our share.
Use The Etax Mobile App To Keep Track Of Your Expenses
The best way to boost your tax refund is to keep your tax receipts and notes about expenses. And, the Etax mobile app lets you take photos and save receipts to your online return. This means you’ll always know where to find those receipts.
At tax time, all of your receipts are in one place. That means it is easy to finish your tax return in July, AND you’ll get to claim more tax deductions because you won’t forget items that you paid for.
This common (and legal) tactic to reduce your tax bill allows you to prepay for expenses that are due early the following financial year. These expenses can include insurance, interest and the next month’s rent.
$20,000-30,000 Instant Asset Write-Off
You may be eligible to write off the cost, or a portion of the cost, of buying assets for your business. Assets include vehicles, computers, printers, mobile phones or office furniture – anything used by you and your employees in your place of business.
Here’s how you know you are eligible to write off the business portion of an asset in your tax return:
- You bought the asset before 30 June 2020, and it was used or installed ready for use in the income year you’re claiming it in
- The asset costs less than the relevant threshold amount
- Your business has an aggregated turnover of less than $500 million (up to $50 million) thanks to COVID-19 amendments.
- It’s easy to forget about expenses. Ensure you keep track of all your work-related expenses so that preparing your tax return is simple and more fruitful. Here are some tips to help you get into good record-keeping habits:
- Keep a logbook of any work trips
- Photograph receipts when you get them – receipts can fade quickly – and store them in a separate folder on your phone or computer.
- If you pay your bills and use online (paperless) banking, it’s easy to forget your automatic debits. Carefully look at your bank statements and include any relevant automatic expenses in your deductions.
- Use the ATO app’s myDeductions tool to capture information on the go and upload your deductions to your tax return (your tax agent can access this too for your convenience)
- Keep your records for 5 years after you submit your tax return if you receive an audit or get questioned by the ATO.
Know Your Tradie Tax Deductions
The Australian Tax Office (ATO) allows tradies to claim tax deductions on various items. However, some of these are unique to tradies: employees in other industries aren’t allowed to claim them!
Remember: work-related expenses are expenses incurred on items used to earn your income as a tradie. To claim a deduction:
- It must directly relate to earning your income
- You must have spent the money yourself without reimbursement
- You must have a record to prove the purchase (e.g. a receipt)
- If you use an expense for both work and private purposes, you can only claim a deduction for the work-related part. So, for example, if you use your personal mobile phone for work calls and emails 50% of the time, you can only claim a deduction on 50% of the phone’s expenses.