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TAX TIME FOR TRADIES 2020: Get the groundwork

02 Jul 2020

The start of a new financial year means getting your taxes in order, and we’ve put together a guide specifically for flooring installers to help you navigate the trickiness of tax time and employee entitlements.

What you can claim also depends on whether you're an employee tradie or a small business (sole trader, partnership, company or trust).

TAX DEDUCTIONS – what can you claim?

As a tradie, you often pay for work-related expenses out of your own pocket, and it can seem like a bit of financial minefield as to what you can and can’t claim.

Some of the common tax deductions for tradies include (but are not limited to):

• Work clothing that has a business logo on it.
• Protective items like hi-vis, boots and safety glasses.
• Tools or equipment that have been purchased, leased or repaired.
• Laundry/cleaning expenses for work related clothes.
• Sunscreen and sunglasses if you work outside.
• Work-related tablet, computer or phone expenses.
• Home office expenses.
• Education or training courses, licenses and certifications (only if directly related to your role at that time).
• Car expenses including parking, tolls, running expenses, petrol, km driven etc. Note that expenses incurred driving to or from work are not tax deductible.
• Travel and accommodation expenses if you are required to work away from home.
• Union fees.

If you are still unsure whether your item is tax deductible there are 3 questions you can ask yourself to help you decide.

For employee tradies:

1. Is this item directly related to my work, or required for my work?
2. Do I have a proper receipt, invoice or bank statement to prove you bought this item?
3. Did I pay for it myself without being reimbursed?

If you answer “YES” to all three questions, and the item was not purchased using a grant or allowance from anyone, then there’s a good chance that the item is tax deductible.

For small businesses the criteria are slightly different, and the money must have been spent for your business (not a private expense). If it is for a mix of business and private use, only claim the portion that is related to your business. You must also have a record to prove the purchase.

BUYING ASSETS

Buying assets for employee tradies

You can claim a deduction for tools or equipment you are required to buy for your job. If you also use the tools or equipment for private purposes, you can’t claim a deduction for the private use and will need to work out what percentage of the use of the tools is work-related and only claim that amount. If the tools or equipment are supplied by your employer or another person, you can’t claim them as a deduction.

According to the ATO, if a tool or item of work equipment you only used for work:

• cost more than $300 – you can claim a deduction for the cost over a number of years
• cost $300 or less – you can claim an immediate deduction for the whole cost.

Buying assets for small businesses.

If you are a small business owner and bought assets for your business in the last financial year, you can now immediately write them off under the ‘instant asset write-off’ law, up to certain thresholds.

From 12 March 2020 until 31 December 2020 the instant asset write-off:

• threshold amount for each asset is $150,000 (up from $30,000)
• eligibility has been expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million).

You can claim a deduction for each asset first used or installed ready for use, up to the following thresholds:

• $150,000 – from 12 March 2020 until 31 December 2020
• $30,000 – from 7.30pm (AEDT) on 2 April 2019 until 11 March 2020
• $25,000 – from 29 January 2019 to 7.30pm (AEDT) on 2 April 2019
• $20,000 – before 29 January 2019.

From 1 January 2021, the instant asset write-off will only be available for small businesses with a turnover of less than $10 million and the threshold will be $1,000.

You may purchase and claim a deduction for multiple assets provided each asset costs less than the relevant threshold.

Examples of assets include:

• drills
• electric sanders
• electric saws
• grinders
• nail guns
• tool boxes
• work lights
• high-pressure water cleaners
• concrete mixers
• computers, laptops and tablets.
• A vehicle

This deduction applies to most assets, whether the asset you bought is new or second-hand. You claim the deduction in the year the asset was first used or installed ready for use.

Assets you purchased for the relevant threshold amount or more are deducted over time using a small business pool.

RECORD KEEPING

As an employee tradie, to claim a tax deduction you must be able to show:

• that it was you that spent the money
• what you spent the money on (think itemised receipts not just bank or credit card statements)
• who the vendor or supplier was
• when the purchase occurred

Ideally your receipts will show the:

• name of the supplier
• amount of the expense
• nature of the goods or service
• date the expense was paid
• date of the document
• Work out your company tax rate
• Pay bonuses
• Pay superannuation
• Write off bad debts
• Write off obsolete stock
• Write off obsolete assets (unless using Small Business Pool)
• Purchase assets less than $30K
• Review loans to shareholders and associates
• Determine distribution of profits/review your structure
• Know your tax cashflow requirements for 2021

Receipt keeping is particular important if your work-related deductions are more than $200, and after you’ve lodged your tax return you must keep your records for a minimum of five years.

If you're claiming for the cost of a depreciating asset used for work – such as a laptop – you must keep purchase receipts and a depreciation schedule or details of how you calculated your claim for decline in value, for five years following your final claim.

Small businesses

As a small business owner, you need to keep records that substantiate your business income and expenses.

Your records must:

• explain all transactions
• be in writing (electronic or paper)
• be kept for five years (some records may need to be kept longer).

Depending on your tax obligations, you may also need to keep records for GST, fuel tax credits and records relating to your employees and contractors. You can keep your business records electronically or on paper, but keeping electronic records makes some tasks easier, especially if you are using a tax agent to manage your return.

Finally, the start of the financial year is a great time to get your business goals in line for the next 12 months. Here’s a checklist to help you get your foundations set up correctly and set a goal to have these things completed by June 30 2021.

More questions? Head to the ATO website for more information on your employee entitlements at tax time.