For many Australians, navigating the tax system can be quite overwhelming (especially for those engaged in building and construction which is often project-based, contracted work). H&R Block director of tax communication, Mark Chapman, helps take the stress out of their tax returns and maximise your return.

CONTRACTOR OR EMPLOYEE?

It’s common in certain trades for people to be taken on as independent contractors rather than employees. Deciding whether a person is a contractor or an employee can be a minefield, both for the individual and for the business taking them on. Getting it wrong can have a big impact, with consequences both for you and the business that has engaged your services.

• A contractor is a self-employed person engaged for a specific task, at an agreed price, with a specific goal in mind, often over a set period of time. They set their own hours of work and take care of their own tax obligations. Contractors are paid a fee for completing an assignment. They don’t receive a salary or wage and need to pay their own tax from their gross earnings, whilst also generally making their own superannuation contributions (although if you are engaged principally for your labour, the business might still have an obligation to pay super on your behalf).
• By comparison, an employee has tax deducted at source from their salary and receives compulsory superannuation payments from their employer. 

TOOLS & EQUIPMENT

You can claim a deduction for some or all of the cost of tools and equipment if you require it for work purposes. If the work is used for both work and private expenses you need to apportion the cost.  The cost of the asset will affect the type of deduction you can claim:

• you can claim an immediate deduction for items that cost $300 or less and don’t form part of a set

• you can claim a deduction for the decline in value of items that cost over $300 or form part of a set. You can also claim the cost of repairing and insuring tools and equipment if need be.

If you are self-employed, you can immediately write off the cost of any capital purchase (using the “temporary full expensing” measure), including tools and equipment, whatever the value until 30 June 2023. Sadly, this tax break is restricted to those in business and doesn’t apply to employed tradies.

VEHICLE AND TRAVEL EXPENSES

The most important thing to remember when it comes to work-related vehicle and travel expenses is that you must keep records, making everything easier come tax time. If you use your car for work you are entitled to claim the work-related travel expenses that relate to the business costs of using your car to do your job.

Travelling to and from work on a daily basis cannot be claimed as this is considered private travel, even if: you do minor tasks on the way to work, such as picking up mail; you travel back to work for a security call out or parent-teacher interviews; you work overtime and no public transport is available to use to get you home. Methods you can use to claim car expenses include:

• Cents per kilometre:
  • Your claim is based on a set rate for each business kilometre you travel. Under this method, you are eligible to claim up to a maximum of 5,000km per year, per vehicle. If you travel in excess of 5,000km this method of claim is not appropriate for you. You will need to use the alternate method of a logbook to claim.
  • The claim value is calculated by multiplying the total business kilometres travelled (limited to 5,000 per vehicle) by the standard rate of 78 cents per kilometre. This figure takes into account all the vehicle running expenses (including depreciation).
  • You do not need written evidence, however, you need to be able to demonstrate that you have covered the kilometres claimed. A diary of work-related journeys (including the kilometres travelled) will suffice.
• Logbook:
  • Your claim is based on the business use percentage of each car expense. This is determined by a log book that must have been kept for a minimum 12-week period, and must be updated every five years. Through your logbook, you can claim all expenses that relate to the operation of the car, at your percentage of business use.
  • The logbook must record all business journeys made in the car over the 12-week period that it records, detailing;
    • when the log book period begins and ends
    • the car’s odometer readings at the start and end of the period
    • the total kilometres travelled
    • the business percentage for the logbook period
  • For each journey in the logbook, you must record:
    • start and finishing times of the journey
    • odometer readings at the start and end of the journey
    • kilometres travelled
    • reasons for the journey
    • if you make two or more journeys in a row on the same day, you can record them as a single journey.
  • You will need to keep all receipts throughout the year to justify your claim, such as insurance, servicing and repairs. Petrol can be estimated using the start and end odometer readings for the year, indicating the total kilometres travelled.

You can claim the cost of work-related car expenses if they are incurred whilst performing your job as an employee, such as:

• Carrying tools or equipment required to complete your job
• Travelling from your home to an alternative workspace (such as a client/supplier’s office), and then back to your own workplace or home at the end of the day
• Travelling between two separate workplaces where you are employed
• Travelling to conferences, meetings or other events as required by your employer
• Delivering or picking up items/packages related to your job, and as required by your employer

If you are self-employed you can use “temporary full expensing” to can claim an immediate deduction for the work-related cost of utes, vans and cars. Vans and utes with a carrying capacity of one tonne or more are claimable in full whereas the cost of cars and utes with a carrying capacity of less than one tonne is restricted to a GST-exclusive cost of $64,741.

DEDUCTIONS FOR WORK CLOTHING

When it comes to what you wear to work, there are some clothes-related deductions you can claim – the cost of buying and cleaning occupation-specific clothing such as:

• protective and unique clothing (i.e. not everyday wear)
• clothing that easily identifies your occupation, like checked chef trousers
• distinctive uniforms
• clothing and footwear that you wear to protect yourself from the risk of illness or injury posed by your job or the environment in which you do your job. To be considered protective, the items must provide a sufficient degree of protection against that risk and might include:
  • fire-resistant and sun-protection clothing (including sunglasses)
  • hi-vis vests
  • rubber boots for concreters
  • steel-capped boots, gloves, overalls, and heavy-duty shirts and trousers
  • overalls, smocks and aprons you wear to avoid damage or soiling to your ordinary clothes whilst at work.

Claiming the cost of work uniforms:

• Compulsory work uniforms
  • A uniform identifies you as an employee of an organisation. The uniform must be compulsory to wear while you’re at work with a strictly enforced policy ensuring its enforcement. If this is the circumstance surrounding your uniform, the cost is deductible.
  • Where your shoes and socks are an essential part of a distinctive compulsory uniform, you may be able to claim a deduction. Your employer’s uniform policy must specify their colour, style and type. It might be possible to claim a single item of distinctive clothing, such as a jumper if it’s compulsory to wear to work.
• Non-compulsory work uniforms
  • In some instances, you can claim a non-compulsory uniform, given that it’s unique and distinctive to your organisation. Clothing is considered unique if designed and made solely for your employer. Distinctive clothing must have your employer’s logo permanently attached and not be available for public purchase.
  • You can’t claim the cost of purchasing or cleaning a plain, logo-free uniform, such as generic white shirts or black trousers that wait staff wear. Non-compulsory work uniforms are usually required to have a design registered with AusIndustry in order to be tax deductible. Shoes and socks aren’t considered part of a non-compulsory work uniform and neither is a single item such as a jumper.

It’s possible to claim the costs of washing, drying, ironing and dry-cleaning eligible work clothes. Written evidence for your laundry expenses, such as diary entries and receipts must be kept if both the amount of your claim is greater than $150, and your total claim for work-related expenses exceeds $300. This doesn’t include car, meal allowance, award transport payments and travel allowance expenses.

DEDUCTIONS FOR COURSES & TRAINING

Most of us want to better ourselves at work and a large part of doing that is equipping yourself with the skills you need to advance your career. The good news is that you can often do that, and claim a tax break on the costs you incurred at the same time.

Self-education expenses are tax deductible when the course you undertake leads to a formal qualification and has a sufficient connection to your current employment and:

• maintains or improves the specific skills or knowledge you require in your current employment, or
• results in, or is likely to result in, an increase in your income from your current employment.

You can’t claim a deduction for self-education expenses for a course that does not have a sufficient connection to your current employment even though it:

• might be generally related to it, or
• enables you to get new employment.

You can claim the following expenses in relation to your self-education:

• accommodation and meals (if you are away from home overnight)
• computer consumables (such as paper or ink)
• course or tuition fees
• decline in value for depreciating assets such as computers or laptops (cost exceeds $300)
• purchase of equipment or technical instruments costing $300 or less
• equipment repairs
• fares (bus/plane/train, etc.)
• home office running costs (for any home study) such as heat, light, etc.
• interest on any money borrowed to fund the course
• internet usage
• parking fees
• phone calls
• postage
• stationery
• student union fees
• student services and amenities fees
• textbooks
• trade, professional, or academic journals
• travel to-and-from the place where the course takes place (only for work-related claims)

You can’t claim:

• repayments of Higher Education Loan Program (HELP) loans (although the fees paid by some HELP loans are)
• Student Financial Supplement Scheme (SFSS) repayments
• home office occupancy expenses (such as mortgage interest or rent)
• meals where not sleeping away from home

MOBILE PHONE USE

If you use your own phone for work purposes, you can claim a deduction if you paid for these costs and have records to support your claims. If you use your phone for both work and private use, you will need to work out the percentage that reasonably relates to your work use. You can’t double-dip and claim for phone expenses that have been reimbursed by your employer.

To work out your deduction, you need to choose a typical four-week period from some point in the tax year.

If you have a phone plan where you receive an itemised bill, you need to determine your percentage of work use over that 4-week period. You can then apply that to the full year.

PROFESSIONAL ASSOCIATIONS, MAGAZINE SUBSCRIPTIONS & TRADE UNION FEES

As a part of your profession, you may be a member of an association – the good news is, you can claim your subscriptions. If you’re part of a trade union, your fees are also deductible.

Magazines can make a dent in your return, as can subscriptions to mags associated with your line of work.

So now there is no excuse, be well prepared if you want a rewarding End of Financial Year!

GET HELP!

There’s a reason 70% of Australians use a tax professional to prepare their tax return; tax is complicated! Get your tax return wrong and the comeback is on you, either with a lower refund or ATO penalties.

Most people find it far less stressful to simply pass on all their information to a tax accountant like H&R Block and leave it to them to complete their return, safe in the knowledge that the return will be accurate and complete. An experienced tax professional will usually be good at sniffing out those obscure tax deductions you didn’t know you could claim so they can often pay for themselves several times over.

Want to avoid the EOFY hangover? Read this H&R Block guide to learn how. For more info, locate your nearest office or call 13 23 25 today.