Understanding your tax obligations and deductibles can be confusing no matter what profession you work in. This is especially true if you’re a tradie, with the changes in vehicle expenses being especially confusing. Below we explain the different deductions that most tradies are able to claim and give you some tips on how to ensure you’re paying the correct amount of tax.
Vehicle Expense Deductions
Since the Australian Taxation Office (ATO) announced its focus on car expenses and the methods for being able to determine the deductible amount, it has caused a major concern among the trade industry regarding their expenditure. Ever since the introduction of the Government’s more simplified approach to this system for car expense deductions two years ago, the once applicable one-third of actual expenses and the 12% of the value of the original methods are no longer applicable, but have been incorporated into two methods.
This now leaves tradies with two options for methods of deductions:
Option 1: Logbook
This method determines the percentage of expenses applicable for business use. Expenses include running costs as well as the natural decline of the vehicle’s value, otherwise known as depreciation and interest in finance. To work out your particular percentage, you need a logbook and the odometer readings. The period for consideration must be from at least the continuous logbook entries of three months. You can claim oil and fuel with proof from either the actual receipts or your estimated fuel costs based on your odometer reading. If your circumstances do not change the logbook remains relevant for a period of five years.
Option 2: Cents per Kilometre
For the time being, until the Commissioner of Taxation amends it, 66 cents per kilometre is now the applicable rate, regardless of engine size, as it was once viewed. However, you can only claim a total of 5,000 business-kilometres per vehicle. To prove this is accurate, you must keep diary entries detailing date, reason for trip and kilometres for work-related trips.
Ways To Reduce Your Income Tax Payments
Now, let’s look at some of the good news for you to utilise to reduce your income tax payments:
1. Instant Write-off Deductions
Small businesses can benefit greatly from using the “Instant write-off”deduction option. If your vehicles or machinery cost you under $20,000 then you can fall under this option. This is beneficial as you do not have to depreciate the assets over its deemed useful life. Note that there are specific requirements to be able to apply the instant write-off. Call Stones Sharp for further advice relating to your circumstances.
2. Setup Cost Deductions
Setup costs for business expenses are tax deductible for Australians starting a new business. Additionally, you are eligible for tax-deductible items for tradies such as vehicle expenses, including repairs, petrol and insurance; work-related phone calls; union fees; tools and much more. These business-related expense deductions are highly beneficial to small businesses in reducing the income tax payable.
3. Small Business Tax Cuts
A further tax cut for small businesses Company Tax Payers of a further 1.5% encourages tradies operating through a company to take advantage and benefit from the government’s reasonable tax rates. To determine if you are considered a “small business”, your turnover is considered in the new policies to have an upperlevel of turnover of $25 million for 2017/18 Financial Year. The Corporate tax rate is 27.5% for ‘Small Businesses” from 01/07/17
4. Claimable Deductions for Electronic Devices
Timing of tax deductions for electronics used by tradies have improved. Whether self-employed or an employee, using laptops, tablets or cell phones for work bring accelerated tax deductions. This shows the government’s recognition of today’s need for these devices for work. As these are tax-deductible, they will help reduce your income tax costs significantly.
Keeping Records of Expenses
Like all taxpayers, it is important for tradies to keep records of their expenses. All money spent must be proved to have been needed for work for it to be deductible. Ensure all records are carefully in place to avoid paying higher tax than you should. Keeping a running record ensures a more smoothly-run business operation, which will also be beneficial for you in other areas of business. Current bookkeeping programs allow you to also store the tax invoice or other records electronically.
Finally, it is recommended that tradies make good use of the apps available from the ATO website and other program providers to ensure that their record-keeping can be more organised, which will lead to a more streamlined process when claiming. The professional corporate tax accountants at Stones Sharp in Kew, Melbourne are confident in assisting and advising tradies with all their taxation obligations, bookkeeping needs and business mentoring.
FCPA & CA
Shane is a Fellow of the Australian Society of Certified Practicing Accountants and a Chartered Accountant.
Shane’s passion is to consider the clients, the client’s business and taxation affairs with a holistic approach whilst providing business mentoring, business strategies, systems development, taxation advice and taxation planning in order to assist his clients and their business achieve their goals.
