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Tax Deduction for Sunglasses

November 15th, 2014

tax deduction for sunglasses

Tax Deduction for Sunglasses

 

Sunglasses (including prescription sunglasses) are a legitimate claim for a taxpayer if their job involves exposure to the sun from working outdoors. Taxpayers may also be able to claim a tax deduction for sunglasses where their job involves a lot of travel.

Taxation Ruling 2003/16 gives three examples of situations where a taxpayer may be able to claim a tax deduction for sunglasses:

Example 1

Trevor, an outdoor worker in a horticulture business, uses sunglasses, a sunhat and sunscreen to protect himself from exposure to the sun when at work. As there is the necessary connection between the expenditure and Trevor’s income earning activities, he can claim a deduction for the cost of these items.

Example 2

Alison is an office worker. Her employer’s offices are located in two buildings, a short walk apart. She wears sunglasses when walking to the other office. The facts in Alison’s case indicate that the risk of illness from the environment in which she works is not sufficient to make it necessary for her to use protective items to counter that risk. Consequently, there is not the necessary connection between Alison’s expenditure on the sunglasses and her income earning activities. Any protection provided by the sunglasses is not incidental and relevant to her income earning activities. Therefore Alison cannot claim a deduction for the sunglasses. If the walking distance between the offices was sufficient to require Alison to take protection from the sun, she would be able to claim a deduction for the protective items. An indication that there was a sufficient requirement for Alison to take protection when walking between the offices would be that, in addition to wearing sunglasses, Alison also found the need to apply sunscreen lotion and to wear a hat.

Example 3

William, who drives a truck for a living, finds it necessary to wear sunglasses to protect him against the glare of the sun while driving the truck. He also needs to wear glasses while driving, for his short sightedness. He buys a pair of prescription sunglasses which counter the glare during day driving. He also buys a pair of untinted prescription glasses for night driving. William can claim a deduction for the prescription sunglasses, but not for the untinted prescription glasses.

At the end of the day the determining factor in a taxpayer’s ability to claim a tax deduction for sunglasses will be the length of time they are actually required to spend outdoors as part of their job.

Etax online – the most common mistakes made by taxpayers lodging their own tax

October 26th, 2014

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Etax online – the most common mistakes made by taxpayers lodging their own tax

Taxpayers choosing to lodge their own tax online through software providers such as etax is on the rise.  If you’re going to ditch your accountant and take control of your own tax affairs then it’s important you understand the risks involved.

Read on for some of the most common mistakes made by those lodging their own tax online:

1. Using the pre fill function in etax online before all the information has been made available to the ATO. 

I recommend not lodging your tax return too early if you’re going to use etax online.  Especially if you’re going to use the pre fill function which allows you to download your data directly from the ATO into your tax return.  Information such as interest earned on your bank accounts and PAYG summaries issued from employers can take a number of weeks to show up in the ATO pre filling information.  The Tax Office uses the pre filling information to data match against the information in your tax return.  If there is a discrepancy you will get audited.

 It’s imperative that if you use and rely on the pre fill function in etax that you double check to make sure all the information is there and correct.

2. Getting the Medicare question wrong.

Perhaps the most confusing part of online DIY tax returns is the Medicare and Private Health question.  These questions are particularly important now that the private health government rebate is scaled according to your taxable income.  Pay particular attention to this question making sure you read and answer correctly.  If you have private hospital or extras cover then it’s extremely important that you wait for your end of year tax statements to come in the mail before you lodge your tax return.  Copy the details into your tax return exactly as they appear on your end of year statement.

 If you’re unsure about this question phone the Tax Office and ask them to help you through it.  This question gets data matched by the ATO.  If there are discrepancies then you may be audited.

3. Not making use of private rulings.

Private rulings are issued by the Tax Office and provide advice based on a taxpayers individual circumstances.  For example, if you are unsure whether you’re eligible for a tax deduction you can fill in the private ruling form detailing your circumstances and the tax deduction you wish to claim.  The Tax Office will write back to you letting you know if you’re eligible to claim the tax deduction based on the information you have provided.  This private binding ruling will give you full protection in the event of an audit.

If you’re lodging your own tax online then there is a much higher chance of getting audited.  It’s important that you make the most of private rulings.

4. Not keeping the correct substantiation.

Not all tax deductions require the taxpayer to keep a receipt.  There are different substantiation rules for motor vehicle expenses and overnight travel expenses.  Up to $200 of small items costing less than $10 each can be recorded in a diary rather than keeping receipts.  If you’re using the commissioner’s estimate to claim laundry expenses then you can claim up to $150 without the need to keep written evidence.  You must, however, keep a diary showing how you calculated your claim.  If you’re claiming less than $300 of work related expenses in your tax return then you will not need to keep receipts.  Note this $300 cap includes laundry.

 As you can see from the paragraph above, substantiation rules are complicated.  The Tax Office will show no mercy in the event of an audit if you have not kept the correct substantiation for the tax deductions you have claimed.  Make sure you read up on your substantiation requirements before you lodge your tax return.

5. Not claiming all the tax deductions you’re entitled to.

It costs on average $120 to get an individual tax return lodged through a registered tax agent.  After claiming a tax deduction for this fee the average tax payer is only really paying $80 to lodge their tax with a professional.

To put the above statement in perspective – a taxpayer on an average income only has to miss ONE $200 tax deduction when lodging their own tax online and they are absolutely no better off financially by self-lodging.  Not only that, but they are on their own in the event of an audit!

 

Lodging your own tax online will certainly save you some money, but make sure you are claiming all the tax deductions you’re entitled to or it defeats the purpose.

At the end of the day taking control of your own tax affairs does not give you a free ticket to play dumb.  The Tax Office won’t expect you to become a tax expert, but they will expect you to know the basics behind the claims you’re making.  Lodging your own tax online can be very rewarding.  Just make sure you do your research, keep appropriate substantiation and if in doubt phone the Tax Office for help.

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Tax Deductions Makeup

February 13th, 2014

Colorful make-up products isolated over white

 

Taxation Ruling 96/18 deals with make-up and other personal grooming expenses. The Tax Office view regarding make-up is in paragraph 5:

As a general rule, expenditure on cosmetics, personal care and grooming is private in nature and not deductible.

This ruling then goes on to talk about a case known as Mansfield’s Case (Mansfield v. FC of T 96 (ATC 4001; (1996)31 ATR 367 ).  This particular case was ground breaking and you will often see it referred to on the Tax Office website.  The case involved a flight attendant who was required to be well-groomed by her employer.  The flight attendant not only wanted to claim her make-up as a tax deduction, but also her hair cuts and hair styling products.  The judge stated the following:

‘Even if make-up as such is required by the airline as an incident of the employment, I am presently of the view that make-up retains an essential personal characteristic which excludes it from deductibility.’

Not surprisingly the judge also denied the flight attendants claim for hair styling products and hair cuts.

So when will make-up be tax deductible?

If you’re an actor, variety artist, singer, dancer or circus performer, then the cost of your stage make-up may be tax deductible.  TR 96/18 uses the following example:

Alan is an entertainer. As part of his act he portrays himself as an aged person. Alan wishes to claim a deduction for the stage make-up and make-up remover he uses to make himself appear older than he actually is.  Alan would be allowed a deduction for the cost of the stage make-up used while he is playing the role of the aged person as part of his act.

This view by the Tax Office is also reiterated in Taxation Ruling 95/20 which  talks about tax deductions for performing artists.  Paragraph 109 states:

A  deduction is allowable for the cost of make-up, including cleansing materials to remove stage make-up.

The key to note here is that stage make-up is special and can be distinguished from normal every day make-up.  Generally you wouldn’t wear your stage make-up out shopping and here lies the point.  It really is restricted to on-stage and, therefore, directly linked to an actor or performing artists job.

For occupations such as models, television presenters or off stage actors, unless your make-up is special stage make-up or has some other distinguishing feature, you generally won’t be allowed a tax deduction.  TR 95/20 uses the following example:

Sophie is an actress in a television series. She has regular hair styling and beauty treatments to present a well-groomed image to the public. These costs relate to Sophie’s personal care and are private and not allowable.

Final Word

At the end of the day, Mansfield’s and other case-law has shown that generally for most occupations, regular conventional make-up will not be tax deductible regardless of the fact that your employer may require you to wear it at work.  If the make-up has an additional element such as stage make-up then it may be considered tax deductible.

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

 In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.

 

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Tax Deductions for Firefighters

February 1st, 2014

In to the fire, a Firefighter searches for possible survivors

 

Tax Deductions For Firefighters

This is my longest ever blog on Online Tax Solutions.  But let’s face it, our Australian fire fighters are true hero’s and definitely worthy of sharing my knowledge on tax deductions for firefighters.

VOLUNTEER FIREFIGHTERS

When a volunteer firefighter donates their time to fighting fires and receives no monetary payment in return then they will not be entitled to any tax deductions. Tax deductions for firefighters must be related to the earning of assessable income.  Unfortunately because volunteer fire fighters do not earn any assessable income, they are therefore unable to claim any tax deductions.

ATO ID 2002/910 looks at a volunteer firefighter who wanted to claim the purchase of fire equipment as a tax deduction.  The answer from the ATO was no.  This is what they said:

The expenditure will not be incurred in the course of gaining or producing the taxpayer’s assessable income. Consequently, the taxpayer will not be entitled to a deduction under section 8-1 of the ITAA 1997 for the costs of firefighting equipment which they will use as a volunteer firefighter.

It is also important to note that the expenses a volunteer firefighter incurs in undertaking voluntary work does not meet the criterion of a donation of money or property.  Therefore they can’t be claimed as a tax deduction under donations.

Taxation Ruling TR 2005/13 deals with gifts and at paragraph 83 it states:

Services that are provided to a Deductible Gift Recipients by volunteers are not tax deductible as there is no transfer of property involved. Likewise any expenses that may be borne by the volunteer in the course of providing the services to the DGR are not deductible as gifts as there is no transfer of property to the DGR.

PAID FIRE FIGHTERS

Generally paid fire fighters can claim the following expenses as a tax deduction:

  • Protective Clothing and Uniform
  • Washing protective clothing and laundry
  • Sunscreen, hats and sunglasses
  • Fire equipment, torches and batteries
  • Mobile phone for being on call

Motor Vehicle Travel

For the paid fire fighter, motor vehicle travel is a grey area and a very misunderstood area of tax law.  Firstly, fire fighters are often contacted at home to come immediately into the fire station.  This has resulted in fire fighters believing they are entitled to motor vehicle travel from the minute they leave their house to travel to the station.  On top of that, they are often required to carry bags of fire equipment which can be wrongly interpreted for heavy and bulky equipment.

Let’s quickly look at a few common motor vehicle travel scenario’s encountered by fire fighters and how the Tax Office might view these circumstances in the case of an audit:

Travel between home and the fire station

Generally, expenditure in travelling between one’s private residence and place of work is of a private nature and is accordingly excluded as a deduction under section 8-1 of the ITAA 1997. Only in some special circumstances is such travel deductible. These exceptions are summarised in Taxation Ruling IT 2543 and include where the taxpayer’s employment can be construed as having commenced before or at the time of leaving home.

Taxation Ruling IT 112 states:

In the case of a taxpayer whose employment requires him to be on stand-by duty at home, the deductibility of expenditure in travelling from home to a place of work is a question of fact to be decided according to the circumstances of each case. The mere fact that a person is on stand-by duty at home is not enough. The fact that the person gets paid for the time taken to travel to work after receiving an afterhour’s call out, although relevant, is insufficient. More important is whether the person commences his or her actual duties from the time of the call.

In the case of a fire fighter, their duties do not normally commence from the time a call out is received at home.  When they arrive at the fire station is normally when their duties commence.   This type of travel is therefore commonly classed as home to work travel and generally no tax deduction will be allowed.

 Travel between home and the fire station carrying bulky equipment

A deduction may be allowable for the cost of travel between home and work for an employee who is required to transport bulky equipment.

Paragraphs 63 and 64 of Taxation Ruling TR 95/34 explain that a deduction may be allowed in these circumstances where:

  • The cost can be attributed to the transportation of bulky equipment rather than to private travel between home and work,
  • It is essential to transport the equipment to and from work and it is not done as a matter of convenience or personal choice,
  • There are no secure facilities available for storage of the equipment at the work place.

The question of what constitutes ‘bulky equipment’ must be considered according to the individual circumstances in each case.

In Crestani v. FC of T 98 ATC 2219; (1998) 40 ATR 1037 (Crestani’s Case), a toolbox which measured 57 cm x 28 cm x 25 cm and weighing 27kg was considered as ‘bulky’, in the sense of ‘cumbersome’, and the transport cost was ‘attributable’ to the transportation of such bulky equipment rather than private travel between home and work. The employer did not provide a secure storage area for the toolbox and the use of public transport was not a viable option.

Unfortunately Tax Agents and the Tax Office have little to work with when it comes to assessing if they think equipment may be heavy or bulky.  All we can really do is refer to case law such as Crestani’s case and make an assessment based on each firefighters individual circumstances.  Certainly if you’re a firefighter doing your own tax online through etax and wish to self-assess your eligibility for travel with bulky and heavy equipment, then comparing your situation to that of Crestani’s would be a good start.  Your equipment should at a minimum be over 20 kg and I would recommend closer to 27kg.  I also recommend that you submit a private binding ruling to the ATO so you can get a yes or no answer.  That way you won’t be stung should you be flagged for an audit.

Travel between fire station and emergency site(s)

Travel expenses you incur in travelling from the fire station to an emergency site may be a deductible expense.

WHAT IS NOT TAX DEDUCTIBLE?

GYM MEMBERSHIPS AND GYM EQUIPMENT

Taxation Rulings TR 95/13 and TR 95/17 deal with the deductibility of gymnasium membership fees for police officers and Australian Defence Force (ADF) members. Generally, such fees are considered to be private in nature and not deductible under section 8-1 of the ITAA 1997.

However, a deduction is allowable for these costs if the police officers or ADF members can demonstrate that strenuous physical activity is an essential and regular element of their specific occupation income earning activities as physical training instructors or members of special combat squads or of special emergency squads and they are required to maintain a level of fitness WELL ABOVE the average Defence Force member.

There is no doubt that firefighters require a certain level of fitness and strength.  However, generally the Tax Office does not consider this level of fitness comparable to that of a police force physical training instructor or a defence force member in the special combat squad.  Therefore, generally gym memberships will not be tax deductible.

SHAVERS & HAIRCUTS

Unfortunately the list of tax deductions for firefighters does not include shavers and haircuts.

The Commissioner has issued two occupational rulings providing his views on the deductibility of expenditure on hairdressing and personal grooming.

Taxation Ruling TR 95/13 deals with the Police Force and Taxation Ruling TR 95/17 deals with the Defence Force. Both rulings state that a deduction is not allowable as such expenditure is private in nature.

Regardless of the fact that you may be required to be clean shaven in order to wear your breathing equipment apparatus, you will generally not be allowed a tax deduction for razors.  Likewise, if you’re required to maintain your hair in a certain way, you will generally not be allowed a tax deduction for this either.

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Our Content is not intended as, nor should it be construed as advice and we recommend that you contact us directly if you would like information or advice that takes into account your personal and particular goals and financial situation. We will be able to provide information specific to your personal business, affairs or answer any questions you may have.

Are vaccinations tax deductible?

January 15th, 2014

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ARE VACCINATIONS TAX DEDUCTIBLE?

Vaccinations are another area where the Tax Office keeps a watchful eye, allowing a tax deduction to only a handful of lucky taxpayers.  Generally vaccinations to cover the risk of infectious diseases at work are viewed by the Tax Office as private in nature and not tax deductible.  The reason for this is that the vaccination is to cover a disease that any taxpayer from the general community can catch.  Therefore it can’t be directly linked to the taxpayers occupation.  For example, a Nurse is certainly subject to a range of diseases in her job.  However many of those diseases can also be caught walking down the sidewalk window shopping.

The Tax Office backs up this view regarding nurses in TR 95/15.   This ruling states that a deduction is not allowable for the cost of vaccinations to protect nursing employees against the risk of contracting infectious diseases in the work place as the expense relates to a personal medical expense, and is therefore of a private nature.

They also express this view in Taxation Ruling TR 95/8 that deals with tax deductions for cleaners.  This ruling states that a deduction is not allowable for the cost of vaccinations to protect cleaners at risk from infectious diseases in the work place as the expense relates to a personal medical expense, and is therefore of a private nature.

Bottom line – if your occupation is a teacher, child care worker, nurse, tradesmen or office worker, then generally you won’t get a tax deduction for the cost of your vaccinations.

It’s not all bad news!

There will be some limited circumstances where vaccinations may be tax deductible.  This is where a taxpayer can prove the vaccination relates specifically to their occupation.  For example, a shearer gets a vaccination for infectious diseases only carried by the sheep that he works with.  The general public would not normally be subject to this disease meaning there is a clear direct link between the expense and the earning of assessable income.

ATO ID 2002/775 deals with a similar example.  In this particular ID the taxpayer operates a business as a sole trader. As a direct consequence of carrying on that business, the taxpayer is regularly exposed to cattle that may be infected with Q fever. Q fever is a well recognised occupational hazard within the cattle industry. As a result of the probability of coming into direct contact with potentially infected animals, the taxpayer incurred medical expenses to vaccinate against Q fever. His vaccination expenses were allowed as a tax deduction.  In this ID the Tax Office states:

Generally, a deduction is not allowable for the cost of vaccinations to protect against infectious diseases in the work place as this is a personal medical expense and, therefore, of a private nature (see Income Tax Ruling TR 95/8).  However, in this particular case, the disease being vaccinated against is not one which affects the general community but is restricted to persons who come into close contact with cattle.

This is great news for taxpayers that work with animals.  It means you may be entitled to a tax deduction for vaccinations against animal related diseases.  Other types of taxpayers may also be entitled to a tax deduction in extremely rare circumstances.  Note however that these taxpayers will need to prove the vaccination they are receiving is to cover a disease that is restricted to their occupation and does not affect the general community.

Finally, it really isn’t worth avoiding a vaccination and risk getting sick just because you’re not entitled to a tax deduction.  If you’re concerned about the cost of your vaccination, then I suggest talking to your employer and asking them to cover the bill.

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This tax book includes information on:

                • the top mistakes taxpayers make when lodging their own tax online through e-tax and other online return providers
                • get tips on avoiding an audit
                • get tips on how to maximise your tax refund

Online Tax 2

 

 

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.  In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.

Is my gym membership tax deductible?

December 15th, 2013

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Is my GYM membership tax deductible?

Unfortunately this is one area of tax law where the answer from the Tax Office will almost always come back as a NO! As personal trainers hit the streets in droves, the Tax Office are being extremely careful to stand their ground, keeping the tax deduction of gym memberships for the rare privileged taxpayer.

Generally fitness expenses such as the cost of a gym membership are considered by the ATO to be private in nature as it ultimately involves the person’s own physical wellbeing.  This position does not change, even if the person is employed to undertake physical activity as part of their duties.  For example, a school PE teacher or a personal trainer.

When looking at gym membership fees the Tax Office will always refer to Taxation Ruling 95/17.  This particular ruling talks about Australian Defence Force members and the levels of fitness required for gym memberships to be tax deductible.  Although this ruling relates specifically to Defence personnel, it can be used as a guide in determining how the ATO might treat gym memberships for all other occupations.

Let’s have a closer look at TR 95/17.  This ruling states the following:

A deduction is not allowable for fitness expenses as it is considered to be private.  However a deduction is allowable for these costs if the Defence Force member can demonstrate that strenuous physical activity is an essential and regular element of his or her income earning activities and that these costs were incurred to maintain a level of fitness WELL ABOVE the Defence Force general standard.

This begs the question – what level of fitness would be considered WELL ABOVE the general standard?

TR 95/17 gives us an example:

An Australian Defence Force member who is part of the Special Air Services Regiment would be entitled to a tax deduction for their fitness expenses.

TR 95/13 also gives us an example:

A police officer who was a police academy physical training instructor demands a level of physical fitness well above that generally required of a police officer.  Therefore they would be able to claim a tax deduction for their fitness expenses.

Some professional sportspersons and professional dancers may also be required to keep a level of fitness WELL ABOVE the general standard.

So who can’t claim gym membership fees?

The ATO has acknowledged that the following occupations are required to maintain a high standard of general physical fitness.  However, they are not required to maintain a fitness standard WELL ABOVE an ordinary defence force member.  Therefore gym membership fees will generally not be tax deductible for the following taxpayers:

–         A fitness instructor (unless they can prove they are required to maintain a fitness standard of a police academy physical training instructor)

–         A personal trainer (unless they can prove they are required to maintain a fitness standard of a police academy physical training instructor)

–         A standard police officer

–         A PE teacher

–         A fire fighter

–         An ambulance officer

–         A model

I strongly recommend submitting a private binding ruling to the Tax Office if you would like to claim a gym membership and you fall into any of these categories.  Gym memberships can be easily matched with your occupation code on your tax return making it painfully obvious to the tax office for those people that are incorrectly claiming a tax deduction.

Note that if you’re not eligible for claiming gym memberships, then this is a good guide that other expenses such as sports shoes and home gym equipment will also not be tax deductible.

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                • the top mistakes taxpayers make when lodging their own tax online through e-tax and other online return providers
                • get tips on avoiding an audit
                • get tips on how to maximise your tax refund

Online Tax 2

 

 

 

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information. In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.

Beware – many people are incorrectly claiming rental property travel as a tax deduction!

November 30th, 2013

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Rental property travel – when is it tax deductible?

On the face of it, there seems nothing hard about claiming rental property travel as a tax deduction. Other than working out which motor vehicle method you’re going to use, or what percentage of airfares you’re going to claim, it’s simple, right?

Claiming travel as a tax deduction against your rental property is not simple, and landlords need to make sure they are getting it right! Because when a taxpayer incorrectly claims travel against their rental property, it’s painfully obvious to the Tax Office…

So how do you get it right?

Your travel claim is going to vary depending on the nature of the trip. Some trips will be an outright deduction in the year they are undertaken, and some trips will need to be added to the cost base of your rental property as a capital expense. To get it right, I suggest going out and buying yourself a good quality notebook that you can use to record travel relating to your property. Split your travel according to the following seven headings:

1. Travel to look at a property you are considering buying

Travel to look at properties you don’t own occurs too soon to be related to the earning of any income and will ,therefore, NEVER be tax deductible.

2. Travel to undertake initial repairs BEFORE the first tenant moves in

Rental property repairs will be tax deductible when they are incurred during the period the property is ‘held, occupied or used’ for income producing purposes, and they are attributable either to damage that occurs during the income producing use of the property or to defects that emerge suddenly during that time.

Now read this previous paragraph again and take note of the sections highlighted in bold letters. Note that initial repairs or renovations to rectify damage that existed at the time of purchasing a property does not fall under this definition. The repairs relate to the previous owner of the property, fall under the definition of capital, and therefore need to be written off over 40 years as a capital works deduction. This remains true regardless of whether you let a tenant move in, wait six months, and then undertake the repairs. If the damage was not caused by your tenant then it’s not an outright tax deduction. It’s that simple!

Following on from this, if initial repairs are not tax deductible, then any associated travel will also not be tax deductible. The travel relates to capital improvements and, therefore, must be added to the cost base of the property, decreasing any capital gain when the property is eventually sold.

WARNING: The Tax Office keeps a watchful eye over large repair claims and associated travel claims in the first year of owning a rental property. The majority of times these repairs relate to the previous property owner and should not have been claimed as an outright tax deduction.

3. Travel to undertake improvements on your rental property

Normally something will fall into the improvement category when you start replacing the entire asset or you start changing the nature of the asset. Examples of improvements are:

– Replacing the entire roof

– Replacing the entire fence

– Replacing ALL the electrical wiring

– Replacing ALL the plumbing

Improvements are not an outright tax deduction in the year the work is carried out. They are capital in nature and eligible to be written off over 40 years as a capital works expense. Therefore, any associated travel will also not be an outright tax deduction. This includes travel to your property to watch over the project, travel to the hardware store for materials, and travel to meet with contractors. Any travel associated with capital works must be added to the cost base of the property and used to decrease future capital gains.

4. Travel to undertake repairs that were caused by your tenant

Expenditure on repairs made to a rental property that relate directly to wear and tear or other damage that occurred as a result of renting out the property are generally allowable as a tax deduction in the year the works were carried out. Therefore, travel to the rental property to undertake repair work, visit the hardware store for supplies, or visit contractors for quotes, will also be tax deductible in the year the trips are undertaken.

5. Travel to collect rent

If you manage your own property, you can claim trips to collect the rent as a tax deduction in the year the trips are undertaken.

6. Travel to maintain the property

Travel to do general cleaning and gardening will be tax deductible in the year the trips are undertaken.

7. Travel to inspect the property

Travel to inspect your property is the most common travel claim for landlords. The Tax Office normally views 2 – 4 inspections per year as fair.

You will need to approach this claim with caution. If the intention of your travel was to drive to the city to do some shopping and you thought you might drive past your property at the same time, the travel is really private in nature. Driving past the property was just incidental to the main purpose of the trip which was to do the shopping. Same with flying interstate to inspect your property. Study the purpose of the trip and the works you are carrying out while you are there very carefully. Driving past your rental property for 5 minutes while on a two week interstate holiday may not cut it with the tax office!

My Final word

As you can see, travel relating to rental properties is not black and white. And we haven’t even attempted to go over the different methods of claiming travel in this article. The Tax Office keeps a close eye on the dollar amounts that are placed in the repair and travel boxes of rental property tax returns. They also match these boxes with the date that the property was purchased. I don’t mean to scare my readers, but you really can’t afford to get it wrong.

If you own a rental property and you’re going to lodge your own tax online, then be careful. A normal person who is not working in tax law will find it hard to distinguish between an improvement and repair. I recommend that you find a good accountant that can walk the rental property journey with you. If you really want to lodge your own tax online, then you should approach any works carried out on your rental property with caution. If in doubt, lodge a Private Binding Ruling with the Tax Office.

 

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

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Use it before you lose it – small business instant asset write-offs!

November 24th, 2013

 

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Use it before you lose it – small business instant asset write-offs!

“Use it or lose it” is the question we are all asking ourselves at the moment, as we wait in anticipation to see if the current small business instant asset write-offs will be scrapped under the new government.

Currently when a small business purchases an asset below $6,500 it can be written-off in the year of purchase.  If your business is registered for GST the $6,500 is GST exclusive, and if not, then the $6,500 is GST inclusive.

To be able to access this generous write-off, your small business needs to be classed as a business by the Tax Office with an aggregated annual turnover of less than $2 million.

So what is an asset and what does an instant write-off mean?

A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used. Depreciating assets include such items as computers, electric tools, furniture and motor vehicles.

Normally depreciating assets are written-off over their expected life, which for some assets can be as long as 40 years. Therefore, instead of claiming a tax deduction in the year of purchase like you would with a normal business expense, you claim the deduction spread out over the number of years the Tax Office thinks your asset will last.

For example, Sally purchased a new Computer for her online clothing store.   The Computer cost $2,000.  Based on depreciation rates for computers, Sally’s computer has a life expectancy of 4 years.  Therefore, she would claim a tax deduction of $500 over the next 4 years.

However, with the small business instant asset write-off, Sally can claim the whole $2,000 as an outright tax deduction in the year of purchase because it cost less than $6,500.

How is the best way to take advantage of the immediate write-off rules?

If your business is expecting a higher than normal profit in any particular year, purchasing new assets for your business costing less than $6,500 can bring your taxable income down significantly.

Small business owners should, however, act with caution.  Before you run out and empty your bank account, you need to check the cash flow position of your business.  If you don’t have sufficient cash reserves to buy new assets, then you could end up landing yourself in hot water.  Never purchase an asset just to obtain a tax benefit.  Asset purchases are a management decision and should be made taking into account a number of different factors so you can achieve the best possible outcome for all areas of your business.

Lastly, the current government is wanting to scrap the small business instant asset write-off.  This MAY potentially be your last year to take advantage of the concessions.  I suggest keeping in close contact with your accountant over the next 6 months so they can inform you of any new developments as they happen.

 

This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.

 

Are shavers and haircuts tax deductible?

November 23rd, 2013

shavers and haircuts tax deductible 2Are shavers and haircuts tax deductible?

This is a common question asked by clients, and rightly so for those of you that don’t deal in tax law for a living.  For a normal person, the answer to this question appears obvious.  Your boss asks you to be clean shaven every day for work, you can’t wear your work respirator without it and it’s even in your work contract.  So it should be tax deductible, right?  Wrong!

No one has ever taken the Australian Tax Office to court over not being able to claim shavers as a tax deduction.  There have, however, been some cases on haircuts, which give us an indication of how the courts and the Tax Office view these types of expenses.

Perhaps the most popular is AAT Case U217 87 ATC 1216 where a police officer tried to claim a portion of his hair cut expenses because it was a condition of his employment that he keep his hair short.  Regardless of the fact that he only wanted to claim 50 percent against his work related income, the AAT found that the expense was private in nature and therefore not tax deductible.

In Case L61 79 ATC 488; 23 CTBR (NS) Case 73, an army officer tried to argue a similar case, claiming he was required to be well groomed for work, and therefore he should be entitled to claim a tax deduction for his haircuts.  The expense was found to be private in nature.

In Case 72/96 96 ATC 640, a television newsreader tried to claim a deduction for hairdressing, clothing and makeup purchased for use on camera.  Once again the claim was denied on the basis that these expenses were of a private nature.

At the end of the day, razors, shaving cream, haircuts and makeup are generally seen as private in nature and are not tax deductible expenses.  In limited circumstances, stage actors or performing artists can claim some of these expenses and you can read about that here.  If you’re considering making a claim for any of these items, then I suggest submitting a private binding ruling with the Australian Taxation Office.  See my article on Private Rulings.

 

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This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

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Can you claim a tax deduction for Foxtel subscriptions?

November 18th, 2013

 

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Can you claim a tax deduction for Foxtel subscriptions?

Earlier this year I posted a blog article on what you CAN’T claim as a tax deduction.  In this article I mentioned Foxtel subscriptions.  I now have a constant stream of visitors coming to my website wanting to know – are Foxtel subscriptions tax deductible?  So in response to this, I have decided to do another article laying it all out on the table about what the Tax Office really thinks of Foxtel subscriptions, and what your chances are of getting the Ok tick from the ATO in the event of an audit.

Generally, how does the Tax Office view Pay TV subscriptions?

The occupational ruling for employee journalists (Taxation Ruling TR 98/14) addresses the issue of the deductibility of pay TV.

Paragraph 138 of TR 98/14 states that:

a deduction is generally not allowable under section 8-1 of the ITAA 1997 for the cost of access to pay TV, as it is not incurred in gaining assessable income and is a private expense. It is considered that even though a taxpayer may be able to use part of the information obtained in the course of their work, the benefit gained is usually remote and the proportion of the expense that relates directly to work is incidental to the private expenditure.

Although this ruling relates specifically to employee journalists, the principles contained in the ruling can be applied to other occupations.  It should immediately start ringing alarm bells!  If you’re going to attempt to claim Foxtel subscriptions as a tax deduction, then right off the bat you’re on the wrong side of the ATO.

When will my Pay TV subscriptions be tax deductible?

An example of where pay TV subscriptions will be tax deductible is contained in paragraph 140 of TR 98/14:

Phil is a sports writer employed by a metropolitan newspaper. Phil specialises in test cricket and provides coverage for his employer on all the test matches played in the region. Some of the matches Phil is required to cover are only screened on Pay TV and Phil subscribes to a Pay TV provider in order to compile a report on those test matches. Phil also uses his Pay TV access for private purposes. The work-related portion of Phil’s monthly access fee is an allowable deduction.

Although Phil is a journalist, the basic principles in this article are still the same and can be applied to any occupation.

Another indication of how the Tax Office treats pay TV subscriptions is contained in ATO ID 2002/484.  Note that an ATO Interpretative Decision (ATO ID) does not provide precedents at law, but they do however give a general indication of how the Tax Office may view an attempt at claiming a tax deduction.

In this particular ATO ID an accountant was allowed to claim the cost of an educational channel which he used as part of his professional development hours.  The channel was not part of the standard base package supplied by the pay TV operator, but was an optional add-on with an additional fee. Therefore, the accountant was only allowed to claim the additional fee he paid to have access to that particular channel.  You can read more about ATO ID 2002/484 here.

How do I calculate my claim and what records do I need to keep?

If there is one thing to learn from this article, it’s that – as a work related tax deduction, pay TV subscriptions will almost never be 100 percent tax deductible.  Therefore it will be necessary to split your claim between the work related portion and the private portion.

The Tax Office shows us the correct way to do this through paragraph 140 of TR 98/14:

Paragraph 140 states that the taxpayer must calculate the correct work related/private portion by keeping a diary over a period of one month to establish a normal pattern of usage.

 

Warning:  If attempting to make this claim, you need to be looking very carefully at your intention when you subscribe to pay TV.  If your intention was to watch footy with the boys, it won’t matter whether there is some legitimate work related use.   The Tax Office are very strict on this – in the event of an audit they will look at the sole purpose of subscribing to pay TV.  If it is private, then your TOTAL claim will be denied.  Now let’s be honest folks.  How many of you really sign up for pay TV just so you can watch education channels for work.

My Final Word

When you have an expense that has such a massive private element, the Tax Office are more inclined to keep a watchful eye over attempts to claim it as a tax deduction.  Unless you’re a journalist, you are certainly putting yourself in the spotlight.  I would not attempt to make the claim until you have submitted an application to the tax office for a private binding ruling.  See my article on How to Submit a Private Ruling.

Lastly, if you’re one of the lucky taxpayers that may be eligible to claim a portion of their Foxtel subscription, it then begs the question of whether you can claim a portion of your flat screen Television…

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This information, facts, insights and ideas (“Content”) are for general informational purposes only and nothing contained in it is or is intended to be, construed as advice. It does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon or treated as a substitute for specific or professional advice. You should, before you act or use any of this Content, consider the appropriateness of this information having regard to your own personal objectives, financial situation and needs. It should not be your only source of information but should be treated as a guide only. You should obtain your own independent professional advice before making any decision based on this information.

 In no event will we be liable for any loss or damage including and without limitation, indirect or consequential loss or damage, or any loss or damage howsoever arising from, out of, or in connection with the use of this Content.