It’s tax time and for people who work in the trades, this is the only time of year you can claim back some of your hard earned cash. Let’s face it, you’ve probably paid too much tax and the only way to get back your cash is to claim—the trick is knowing why and how.
What you can claim will depend on your business structure, such as a sole trader, partnership, company or trust, or whether you’re an employee. If you’re in the know, you’ll be able to maximise your tax deductions and also your cash back.
Buying Business Assets
You’ve probably outlaid a bit of money on assets to build your business. You’ll be able to claim the business portion of the cost of new of second hand depreciating assets you’ve bought from your business from 6 October 2020 until 30 June 2022. Eligible assets will fall under the ‘temporary full expensing’ rules or the ‘instant asset write-off’ rules.
Temporary Full Expensing
Business with an aggregated turnover of less than $5 billion can immediately deduct eligible depreciating assets. Your assets must be first used or installed ready for use for the purpose of generating a taxable income between 6 October 2020 and 30 June 2022.
Small businesses can immediately deduct an eligible new asset or second-hand depreciating asset or improvements made to an existing asset. Those assets usually put into the small business pool can be deducted from the pool under the temporary full expensing rules. Check your dates, because this scheme will end on the 30 June 2022.
Pro Tax Tip: Only the business portion of these assets can be claimed, so don’t forget to work out what you use for work and what’s personal use.
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Instant Asset Write-Off
If temporary full expensing doesn’t apply for your asset, you might find you’re eligible for the instant asset write-off. Those assets first use or installed ready for use between 12 March 2020 and 30 June 2021, and purchased by 31 December 2020 may be eligible for instant write-off. The threshold amount is $150,000 and extends to businesses with an aggregated turnover of less than $500 million.
Instant asset write-off thresholds for small business that apply the simplified depreciation rules:
| Eligible businesses | Date range for when the asset is first used of ready for use | Threshold |
| Less than $10 million aggregated turnover | 12 March 2020 to 30 June 2021, providing the asset was purchased on or after 7.30pm (AEST) on 12 May 2015 and by 31 December 2020 | $150,000 |
| Less than $10 million aggregated turnover | 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 | $30,000 |
| Less than $10 million aggregated turnover | 29 January 2019 to prior to 7.30pm (AEDT) on 2 April 2019 | $25,000 |
| Less than $10 million aggregated turnover | 1 July 2016 to 28 January 2019 | $20,000 |
| Less than $2 million aggregated turnover | 7.30pm (AEST) on 12 May 2015 to 30 June 2016 | $20,000 |
| Less than $2 million aggregated turnover | 1 January 2014 to prior to 7.30pm (AEST) 12 May 2015 | $1,000 |
| Less than $2 million aggregated turnover | 1 July 2012 to 31 December 2013 | $6,500 |
| Less than $2 million aggregated turnover | 1 July 2011 to 30 June 2012 | $1,000 |
Instant asset write-off thresholds for businesses with an aggregated turnover of $10 million or more but less than $500 million
| Eligible businesses | Date range for when the asset is first used of ready for use | Threshold |
| Less than $500 million aggregated turnover | 12 March 2020 to 30 June 2021 providing the asset was purchased on or after 7.30pm (AEST) on 2 April 2019 and by 31 December 2020 | $150,000 |
| Less than $50 million aggregated turnover | 7.30pm (AEDT) on 2 April 2019 to 11 March 2020 | $30,000 |
Pro Tax Tip: It’s important for businesses to understand which are the right incentives. A tax accountant can crunch the numbers and work through what best suits your needs. It’s best to not make a decision until you seek the help of a professional.
Claimable assets
Not all assets are created equal in the eyes of the ATO. Some assets can be claimed immediately, while others will need to be depreciated. Assets include:
- Cars and utes
- Drills
- Electric sanders
- Electric saws
- Grinders
- Leaf blowers
- Lawn mowers
- Nail guns
- Ladders
- Tool boxes
- Work lights
- High-pressure water cleaners
- Concrete mixers
- Shelving and storage
- Computers, laptops and tablets.
Assets bought as part of doing the job are valid tax deductions. These are items such as drop sheets, masking tape, gaffer tape, oil or replacement belts for machines.
Pro Tax Tip: Running expenses also include professional services. The cost of managing your tax affairs, such as a tax gent, broker and software are eligible tax deductions.
Car limits
One thing tradies can’t do without is a work vehicle. Motor vehicles are subject to their own criteria of deductions. Most tradies vehicles will fall under the category of vehicles designed to carry less than nine passengers or a load of less than one tonne.
The car limits for this range are $59,136 for the 2020-21 income year, and $60,733 for the 2021-22 income year. Make sure you apportion costs between work and private use. This year, the ATO is red flagging car expenses against previous years of tax lodgements, so beware. Do not fudge your figures.
The running cost of your vehicle can also be claimed. Items such as fuel, oil, insurance, repairs and servicing, car loan interest, registration and depreciation can be claimed.
Pro Tax Tip: You’ll need to use the cents per litre or the logbook method to claim your vehicle expenses. Make sure you’re up to date with your logbooks to claim.
Claiming Deductions for Employee Tradies
There are three golden rules for claiming deductions as an employee:
- You must have spent the money yourself and not be reimbursed
- Your expense must be directly related to your job
- You must have the records to prove your expense
Pro Tax Tip: Make sure you apportion your work and private use.
Claiming Deductions for Small Business Tradies
To claim deductions, the money must be for your business and not a private expense. That wheelbarrow you need for your backyard? That’s private, but if you also use it for work, you need to work out the percentage of use.
The records you keep and important. It’s not enough to show a bank statement. You’ll also need receipts, tax invoices, contracts, leasing paperwork and financial institution arrangements.
Protective clothing and tools
Protective clothing, such as high-vis vests and steel capped boots are claimable items. As are outdoor safety gear, such as sunglasses, safety goggles, sunhats and sunscreen. Items that protect you or your staff from injury or risk from injury are valid tax deductions.
If an item of tooling cost more than $100, it may be fully expensed if it falls into the relevant expensing criteria or can be depreciated. If the cost was under $100, you’ll be able to claim a deduction for the whole cost.
Pro Tax Tip: If the tool comes as set and costs more than $100, the whole set will need to be depreciated, even if it’s bought in separate parts. Unless you know all of your tax deductions and how to make them, an accountant can not only make things a lot easier, they’ll work hard not make sure you haven’t forgotten any valid claims. ITP Accounting Professionals have helped Australian individuals and small business with their tax for fifty years. That’s a lot of experience. Phone 1800 367 487 or book online at www.itp.com.au today.