How to Reduce Tax for Tradies
Do you get everything back you deserve from the ATO at tax time? Here are some tips on tax deductions for tradies.
Car expenses are a focus for the ATO so be aware of the latest ways to claim them.
The one-third of actual expenses and the 12% of original value methods can no longer be used for sole traders and individuals in a partnership.
So now there are only two ways to calculate your claim.
Cents per km and logbook methods
The first method uses a single rate of 66 cents per kilometre for all motor vehicles (regardless of the engine size) up to a maximum of 5,000 business kilometres per car. This rate increased to 68 cents per kilometre from 1 July 2018 (ie for the 2018-19 income year).
For drivers who wish to claim more than 5,000 business kilometres, the second method requires you to keep a logbook for a minimum continuous period of 12 weeks. This sets your business use percentage for 5 years.
Odometer readings are needed and you can claim fuel costs based on the logbook records, or from actual receipts. All other car running costs will need written evidence.
You can still claim an instant tax write-off until 30 June 2019 for cars, utes and other large work equipment, including machinery, that cost under $20,000 each (doesn’t matter if they are new or second hand!). This applies to businesses with a total turnover of $10 million or less.
Since April 1 2016, small businesses don’t incur fringe benefits tax when providing employees with multiple portable electronic devices.
Covering work-related laptops, tablets, calculators, GPS navigation receivers and mobile phones, this is a welcome provision recognising how crucial these devices are to businesses nowadays.
Businesses can now deduct a range of expenses associated with starting a new business, such as professional, legal and accounting advice.
This is in addition to other general expenses that are tax deductible for tradies, which includes:
- Vehicle expenses in travelling between work sites (repairs, registration, insurance as well as petrol). In some circumstances, you may be able to claim the costs of trips between home and work if you carry bulky tools or equipment (eg an extension ladder)
- Accommodation and meal expenses if you are required to travel away from home overnight for work
- General work-related travel expenses including public transport
- Work-related phone expenses
- Uniform and protective clothing/equipment, including sunglasses/protective eyewear/hi-vis clothing
- Laundry and dry cleaning of uniforms
- Insurance specific to your trade
- Union and association fees.
Record keeping made easy
Keeping good records of income and expenses is essential in ensuring compliance with GST, income tax and PAYG instalments.
I recommend getting a cashbook, such as Xero, which has automatic receipt processing that allows you to capture and submit expenses through your mobile device on both iOS and Android. You simply take a photo of your receipt and upload it direct into the app.
Organised tradies who take advantage of the long list of tax deductions are in a great position to reduce their tax bill.
Contact us if you have any questions about claiming tax deductions.