1. Follow Legislative Changes
Regularly check in with your tax agent or tax authority to keep up to date with any relevant legislative changes. This ensures that your business structure - whether sole trader, partnership, company or trust - stays cost-effective for tax purposes.
2. Register for PAYG withholding
Remember that you must withhold tax from payments to employees and some contractors. Register for PAYG (Pay As You Go) withholding and send the withheld amounts to the ATO at regular intervals.
3. Defer Invoices
Consider putting off invoicing your clients until after you file your tax return if you haven’t been keeping up with your business activity statements (BAS) to the ATO, which might result in a bigger tax bill than you expected this financial year. This will give you another year to sort out your finances before paying taxes on those earnings.
4. Write Off Bad Debts
You can write off bad debts in your tax return if you record your income on an accrual basis (if you recognise income when it’s invoiced, not when it’s banked into your account). Bad debts are debts that cannot be recovered, such as a client that has not and will not pay you for the foreseeable future. A debt is considered bad if:
- A debtor is untraceable and you cannot find any assets; OR
- A debtor is bankrupt/in liquidation and has insufficient funds; OR
- A debtor has died leaving behind insufficient assets; AND
- Sufficient steps were taken to try and recover the debt and you are justified in no longer pursuing the debt as there is little or no chance of recovering the debt.
If that debt is paid to you after you’ve written it off, remember to include the payment as part of your income in the same financial year you recouped the loss.
5. Prepay Expenses
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.
Ready to find out how much you can deduct? If you bought your asset:
- From 12 March 2020 to 30 June 2020: deduct each asset costing less than $150,000
- 7.30 pm AEDT 2 April 2019 to 12 March 2020: deduct each asset costing less than $30,000
- 29 January 2019 to 7.30 pm 2 April 2019: deduct each asset costing less than $25,000
- 12 May 2015 to 29 January 2019: deduct each asset less than $20,000.
If your asset costs more than the threshold, you can claim a 15% deduction for each asset in the year you buy it, plus a 30% depreciation deduction in subsequent years, using the general small business pool.
Note that from 1 July 2020 this instant asset write-off will only be available for small businesses with a turnover of less than $10 million and the threshold will be $1,000.
6. Record Everything
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, in case you receive an audit or get questioned by the ATO.
If you own a trade business, check out the ATO’s record-keeping for business tips in further detail here.
7. Know Your Tradie Tax Deductions
The Australian Tax Office (ATO) allows tradies to claim tax deductions on various items. 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. 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.
So, which work-related expenses can you claim a deduction on?
Good news: many forms of insurance for tradies are tax-deductible! This includes:
- Public Liability Insurance generally has 100% tax-deductible premiums. Keep your tax invoice from your insurance broker or insurance company for your records each year.
- Tool Insurance is also 100% tax-deductible for employers. If you are an employee, check with your accountant before claiming a deduction on your tool insurance.
- Income Protection Insurance has tax-deductible premiums, regardless of whether you are an employee, a subcontractor, or run your own company. Remember: since income protection is taken out in your personal name, this deduction will generally be on your personal tax return, not your business return.
- Life & TDP Insurance tax-deductibility depends on whether you take out the cover in your own name (not tax-deductible) or via your super fund (may be tax-deductible). You don’t have to worry about claiming this - it will be managed by your super fund.
- Tax Audit Insurance is also deductible and we all know preparing tax returns can be a real pain, and unfortunately, the tax office may sometimes want to check that your business has paid the right amount of tax
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Many tradies move from job site to job site throughout the day. You can claim a deduction for the cost of travel between different work locations (including for different employers).
First, determine whether your vehicle is classed as a car or not. Your vehicle is not considered to be a car by the ATO if it has a carrying capacity of 1 tonne or more (e.g. ute, panel van) or 9 passengers or more (e.g. minivan).
If you are claiming car expenses, you must:
- keep a logbook of your work trips
- If using the cents per kilometre method, be able to show the ATO that your claim is reasonable (for claims up to 5,000km only).
If you are claiming non-car vehicle expenses, you can claim the proportion of your vehicle expenses that relate to work. These expenses include fuel, oil, insurance, repairs, servicing, car loan interest, registration and depreciation. You must:
- keep receipts for your expenses
- (optional) keep a logbook of your work trips
- NOT use the cents per kilometre method
Usually, you can NOT claim for trips between home and work as these are considered private in nature - even if you live a long way from your usual workplace or have to work outside normal business hours. There are exceptions, however! You can claim home-work trips IF:
- you don’t have a usual workplace and you travel between home and different workplaces for the same employer at least every few days, or
- you carry bulky tools/equipment to work (e.g. an extension ladder), provided your employer requires you to transport the equipment for work; the equipment is essential to earning your income; there is no secure area to store the equipment at the work location; and the equipment is bulky, at least 20kg, and difficult to transport.
Work clothing - protective clothing and uniforms
Claim deductions for the costs of buying, hiring, repairing and replacing uniforms that are unique and distinctive to your job. Plain clothing, such as jeans or a plain shirt, is not a uniform and therefore cannot be claimed as a deduction - even if your employer tells you to wear it or you only wear it at work. If your employer pays for your uniform, you are not eligible to claim it as a tax deduction.
Claim a deduction for the cost of washing, drying and ironing work clothing if it is protective, occupation-specific (not an everyday piece of clothing like jeans), or a uniform (compulsory or non-compulsory and registered with AusIndustry). This includes laundromats and dry cleaners.
You can assume that laundry costs $1 per load. If your laundry claim is $150 or less, you don’t need to keep receipts but you do need to be able to explain how you calculated the expense. Please note that this is NOT an automatic deduction.
Protective gear and accessories
You can claim a deduction for protective gear and clothing such as hi-vis vests, hard hats, safety glasses/protective goggles and steel-capped boots that your employer requires you to wear. Protective equipment also includes sunscreen, sunhats, sunglasses and anti-glare glasses if you’re required to work outside.
If you are required to buy your own tools and equipment for your job and you haven’t been given the tools from your employer, you can claim those tools as a deduction at tax time. If a tool or piece of equipment:
- cost $300 or less, you can claim an immediate deduction for the whole cost
- cost more than $300, you can claim a deduction for the cost over a number of years (the life of the tool or toolset).
Remember, if your tools need repair, servicing or insurance, you can also claim those expenses.
If you have to make phone calls, send texts or answer emails for work on your phone, you can claim phone expenses on your tax declaration. It’s common for tradies to use the same phone for personal and work uses. Only claim the percentage of your phone and data costs used for work. If you use your phone for work 50% of the time and for personal use 50% of the time, you can only claim 50% of phone and data expenses as tax deductions.
Required to travel away from home overnight for work? You can claim a deduction for accommodation and meal expenses. Receiving a travel allowance from your employer isn’t enough proof for your claim: you also need to show that you were actually away overnight and that you spent the money, so keep your receipts!
Self-education and study expenses
Claim a deduction for self-education and study expenses if the study is directly related to your current employment and it maintains or improves the skills and knowledge you need for your current duties, resulting in an increase in income. Self-education expenses include fees, books, equipment and transport from your home or workplace to your place of education and back. The first $250 of self-education expenses usually aren’t deductible.
Seminars, conferences and training courses
Claim for the cost of the course or conference if it relates to your work. This includes first aid courses if required by your employer.
Licenses, regulatory permits, certificates and cards
You can claim a dedication for renewal fees, but not the cost of getting your initial licence or certification (even if it’s a condition of your employment).
If you use a home office to help earn your income working as a tradie, you can claim a deduction for running expenses. These include:
Use the ATO home office expenses calculator to help you calculate the amount you can claim.
Many tradies belong to an industry union, but what some tradies don’t know is that annual union membership fees are tax-deductible.
If you use a tax agent to help manage your tax and lodge your tax return, remember to claim this cost as a tax deduction.
FOR EMPLOYERS ONLY
Superannuation and bonuses
Ensure that you pay your employees’ superannuation and check that the superfund has received all payments before the end of the financial year. Then you can claim these payments as deductions on your tax return. You can also claim deductions on employee bonuses if they are paid before the end of the financial year.
You can deduct any expense you pay for your full- and part-time employees, including uniforms and training workshops. This includes contractors you employ to complete a job, such as labourers, builders, painters, plasterers, carpenters, project managers, and so on.
Please note: this article does not constitute financial advice. Consult an accounting professional for tailored advice specific to your business.
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