Tax Time Tips For Tradies
The end of the financial year is almost here and with proposed changes to what you can claim, there’s no better time to consider strategies to trim your tax bill and maximise your deductions
As a tradie, just about every tool you own helps you make a living. That means when completing your tax return, you’re entitled to claim deductions for your Senco cordless nail gun, or your Peerless compressor—even your Pro Choice safety workwear could be claimed as a tax deduction. As long as the expense directly relates to earning your income you can subtract these allowable deductions from your total income to arrive at your taxable income. Fortunately, you only pay tax on your taxable income.
Just remember the tool or equipment can not be a private, domestic or a capital expense. According to the Australia Taxation Office, if the expense is both work related, private or domestic, you can only claim a deduction for the work-related portion. For example if the Milwaukee power tool you bought is used for home renovations 50 percent of the time, you can only claim 50 per- cent of the cost.
Tools and equipment that cost $300 or less, can be written off¬—meaning you can claim an immediate deduction for the full purchase price. Keep receipts for everything—from the Sterling steel closed reel tape to the Bosch angle grinder. The ATO states this is the case as long as each tool or piece of equipment is used for your work as an employee, or is not one of a number of identical, or part of a set of tools you purchased that year—don’t try to claim six individual $50 Sidchrome adjustable wrenches you bought throughout last year. You will have to claim the total amount 6 x$50 = $300.
You can also claim the work-related cost of repairing and insuring your tools and equipment, as well as any interest on money you borrowed to purchase these items.
Just upgraded to a Kincrome upright truck box for your ute? If the tool or piece of equipment costs more than $300, you cannot claim an immediate deduction for the full purchase price, but you can claim a deduction for its decline in value (depreciation). Your claim for depreciation applies to the whole amount—not just the amount over $300.
A better option might be to salary- sacrifice big-ticket items, if your employer allows it. That way you are, in effect, paying for the item from pre-tax salary and reducing your income tax bill. “Employees can salary sacrifice tools and this may be a good way for them to build up their tools of trade slowly over a period of time. Salary sacrifice means your salary is reduced accordingly, so you pay less tax,” explains John Papaspiros, chartered accountant and head of Bourke Business Consultants in Sydney. “You do not claim the expense personally—effectively your employer has claimed.”
Working for yourself? Different rules apply if you are self-employed or run a small business, and there are proposed changes to tax law you need to know.
As part of its 2013 Federal election commitments, the Government announced changes to the instant asset write-off provisions for small business. The changes haven’t come through yet but there may be updates on June 30.
So, what’s changed? For the 2012–13 income year, small businesses had been able to write off depreciating assets—tools and equipment—costing less than $6500 in the income year purchased, or had it installed ready for use. They could also depreciate most other assets in the general small business pool at a rate of 15 per cent in the first year and 30 per cent thereafter.
If the proposed changes are enacted, the threshold will change and only assets costing less than $1000 (acquired and installed ready for use after 31 December 2013) will be eligible for immediate write-off.
Assets costing $1000 or more will – need to be depreciated in the general small business pool.
The bill was introduced into parliament on 13 November 2013, but at time of writing, the law has still not been passed.
It might be tempting to run out and spend large in the hope the law isn’t passed until after this financial year. However, you may want to recon- sider because the changes could be back-dated, meaning you will only be able to write off tools $1000 and under.
Don’t wait until 1 July—there has been no better time than the present to discuss your individual tax strategies with your accountant.