Tax season is one of the most stressful times for Australian tradies. Since trade service companies and their employees incur many business expenses, claiming deductions for tax returns can be overwhelming unless you’re organised. To help you get ahead of the 2021 tax season, we’ve compiled a few useful tips.
Follow tax changes
It’s important to stay up to date on the latest tax breaks and legislative changes so you don’t miss out on thousands of dollars in claimable expenses every year. For the 2020–21 financial year, there are two major tax deduction incentives from the Australian Taxation Office (ATO) you should be aware of:
- Instant asset write-off – Businesses with an annual turnover of less than $500 million can use the existing instant asset write-off scheme for assets that are not covered by temporary full expensing. Businesses can use this scheme to claim deductions on assets worth up to $150,000 and were installed between 12 March 2020 and 30 June 2021.
- Temporary full expensing – This measure expands on the instant asset write-off, allowing Australian businesses with an annual turnover of less than $5 billion to claim a deduction on the full value of eligible new or second-hand depreciating assets. Eligible depreciating assets are items purchased for business purposes that lose their value over time, such as heavy machinery and computers. Unlike the initial scheme, however, it allows businesses to claim deductions and removes the $150,000 threshold on eligible assets. Businesses will also be able to claim full deductions for the cost of improving existing assets. The temporary full expensing measure was initially due to expire on 30 June 2022, but it was recently extended to 30 June 2023.
Know what you can claim
You must know the types of expenses you can claim to maximise your returns. Essentially, you can claim an expense if it’s directly related to or required for work. In cases where work-related expenses are used for both business and private purposes, you may only claim a deduction for the business portion. For instance, you can only claim 50% of a company-issued laptop if you spend half the time using it for personal purposes.
Below are three types of expenses you can claim for deductions:
1. Tools and equipment
Business owners can instantly claim a deduction on tools and equipment costing less than $150,000. Examples of equipment expenses you can put a claim on include nail guns, work lights, rugged laptops and tablets, concrete mixers, and boom lifts.
For employee tradies, it’s possible to claim a deduction immediately for tools worth $300 or less. If the expense is more than $300, however, they’ll have to claim a deduction on the tools’ depreciating value over time.
2. Protective clothing
If your job requires you to wear clothing or footwear designed to reduce the risk of work-related injury and illness, you can claim a tax deduction. Protective clothing may include safety glasses, hi-vis vests, sunscreen, steel-capped boots, and even masks for COVID prevention. You can also claim the cost of laundry and dry-cleaning for work uniforms and protective clothing.
3. Vehicle expenses
For business owners, it’s possible to claim the cost of commercial vehicles (i.e., vans and utes) under the $150,000 instant asset write-off scheme. Generally speaking, commercial vehicles have a payload capacity of more than 1 tonne. As for normal passenger vehicles, businesses can only claim a deduction of up to $59,136 for the 2020–21 income year.
Meanwhile, employee tradies can claim car expenses for trips requiring them to transport bulky tools for work. These expenses include fuel, oil, insurance, loans, servicing fees, and depreciation costs. If employees claim car expenses, they should keep a logbook to record evidence of car expenses.
Complete BAS reports on time
Business activity statements (BAS) record how much goods and service tax (GST) you collected on sales, and how much GST was paid on purchases. The ATO uses this information to work out whether you owe GST payments or if you’re entitled to a refund.
Failing to lodge BAS reports by the deadline may result in hefty fines unless you have a good reason, which is why it’s crucial to be diligent with your submissions. Companies with an annual turnover of more than $20 million dollars will need to submit BAS on the 21st of every month. However, if your organisation’s annual turnover is less than $20 million, you’ll need to lodge your BAS every quarter. Here are the BAS lodgement due dates for each quarter:
- Quarter 1 (July to September): 28 October
- Quarter 2 (October to December): 28 February
- Quarter 3 (January to March): 28 April
- Quarter 4 (April to June): 28 July
The key to staying on top of your BAS submissions is to get accounts organised. Accounting software like Xero, QuickBooks, and MYOB Online can help you set up a chart of accounts to track your paid and collected GST. They also allow you to process GST reconciliations, lodge your BAS, and make direct payments to the ATO.
Keep detailed records
Detailed documentation is crucial when filing taxes, especially since the ATO is cracking down on false tax claims. When you have an organised logbook that substantiates your income and expenses throughout the fiscal year, you can accurately and efficiently fill out tax claims.
Trades businesses must hang on to work-related receipts and invoices for expenses as written evidence for a tax deduction claim. Receipts must clearly display the name of the supplier, amount of expense, purpose of transaction, nature of goods or services, and document and payment dates. Keep in mind that bank or credit card statements may not include all this information.
Employee tradies who don’t have receipts for small expenses that are $10 or less can still make a claim provided that they’ve logged it in work reports and databases. If they’re claiming depreciating assets worth more than $300, like a smart tablet, they must keep purchase receipts and calculations on how the assets’ value declined over time. Also, it’s good practice to keep a log of work trips, fuel receipts, servicing fees, and other travel expenses for business-related vehicle deductions.
Make sure to keep any relevant records for at least five years. This way, if any claim is questioned by the ATO, you’ll have written proof of work-related expenses in a dispute case and avoid hefty fines. You should also store electronic copies of receipts in accounting platforms because paper records create clutter and are easily misplaced. This will enable you to quickly upload expense records to the ATO’s myDeductions app to make lodging tax returns a breeze.
If you truly want to stay organised for tax season, integrating your accounting software with the WorkBuddy job management system is a game-changer. WorkBuddy syncs with your accounting database to streamline expense reporting and tax deduction claims processes. Request a free demo today to learn more.