Whether you’re a tradie, chippie or computer programmer, there are tools of your trade you can deduct from your taxable income – so what tools can you claim and how can you claim them?
Tools, equipment and other assets can be claimed if you use them for your work duties. If you use the tools of your trade privately, such as a car on the weekends or to pick your kids up from school, you’ll have to apportion the private use – that includes if you use your work ute to take your daughter to her dance class.
Prove Your Expenses
The Australian Taxation Office (ATO) might ask for more than simply your receipts to prove your expense. Some examples of the records you’ll need to keep include income statements and summaries from your employer and Services Australia; bank and financial institution statements; dividend statements; tax invoices; bank statements; contracts; tenant and rental records.
Pro Tax Tip: Stay on top of your record keeping with a good software program. Save and allocate expenses as they arise.
Good record keeping has many benefits apart from proving evidence of your income and expenses. They’ll help you claim all of your deductions – no proof, no claim – ensure you’re able to claim government entitlements, reduce the risk of audits and helps to resolve any disputes.
Pro Tax Tip: You’ll need to keep your records for five years from the day you lodge your tax return with that relevant income or expense claim. As well as proof of purchase and other evidence, you may need to keep a work diary to prove your business versus private use. A work diary should be kept for four consecutive weeks, time started and finished, description of the work and total work hours.
Cost Of Assets
The types of deductions you can make depends on the cost of the item. If your tools and equipment cost $300 or less, an immediate deduction can be claimed for the full amount in the year you bought or first used it. You’ll need to use the tool mainly for work and the tool can’t be part of a set that cost more than $300 together.
You can claim the decline in value of a piece of equipment if the item cost more than $300 or is part of a set that together costs more than $300.
If you are a business, such as a sole trader then the $300 limit will not apply.
Pro Tax Tip: To claim tools and equipment, you must have bought the items. They can’t be supplied by your employer or on items you may have been reimbursed for.
When it comes to claiming tools, you’ll need to make sure your proof of purchase includes:
- Supplier name
- Purchase cost
- Nature of the goods
- Date of purchase
- Date of document
As an employee higher cost items will need to be depreciated. The ATO has a depreciating schedule which outlines the percentage and years an item will need to be depreciated. Depreciated assets have a limited work life and can be expected to drop in value over the period of years in which it’s used. This is based on:
- The cost of the asset
- The effective life
- The amount of work-related use
Assets can be depreciated when the item has been first used or installed for work-purposes. Assets decline in value from their start time. After the asset has been depreciated, no further claims can be made.
The effective life of the asset is determined by how long the item can be used to produce an income and takes into account wear and tear, maintenance and the period of time in which it’s likely to be scrapped.
Examples of depreciating assets include:
- machinery and equipment
- motor vehicles
- furniture, carpet and curtains
- computers and computer accessories, including keyboards
- landline phones and headsets
- mobile phones, tablets and styluses.
What Type Of Tools And Equipment Can I Claim?
You may think that tools only incorporate items such as hammers, screwdrivers and saws. They do, but the category for claiming items used for work is much wider. Think calculators, computers and software, desk, chairs and lamps, filing cabinet and bookshelves, protective and safety equipment, technical instruments.
Occupational specific tools can be claimed such as a fob watch for nurses, sunglasses for outdoor workers, a barrister’s wig for judges.
Pro Tax Tip: You can claim the cost insuring your tools of trade.
Handbags, Briefcases, Satchels
Assorted bags used to protect or carry your tools and equipment can be claimed as tax deductions. These deductions depend on the work-related use and its purpose. The same deduction amounts apply for bags costing $300 or more (depreciation deduction), or $300 or less (immediate deduction). ITP Accounting Professionals have helped Australian individuals and businesses for 50 years. There’s not a lot we don’t know about tax and finances. Phone 1800 367 487 and chat about your budgeting needs and how we can help you save on your tax dollar.