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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

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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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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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                • get tips on how to maximise your tax refund

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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.

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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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.

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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                • 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.


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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                • get tips on avoiding an audit
                • get tips on how to maximise your tax refund

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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.

Tax deductions for tradesmen

November 12th, 2013

Tax deductions for tradesmen

TAX DEDUCTIONS FOR TRADESMEN

 

Instead of covering every tax deduction claimed by tradesmen, I’m going to focus on a few areas that still seem to be a cause of confusion with the boys.

 Protective clothing and laundry expenses

Many Tradies still don’t understand what the definition of protective clothing is according to the Tax Office.  The ATO define protective clothing as:

Protective clothing and footwear to protect you from the risk of illness or injury, or to prevent damage to your ordinary clothes, caused by your work or work environment. Items may include fire-resistant clothing, sun protection clothing, safety-coloured vests, steel-capped boots, gloves, overalls, aprons, and heavy-duty shirts and trousers.

Unfortunately, this definition is very vague, and still leaves countless questions unanswered.  What is heavy-duty?  Does it need to be a particular colour?  Does it need to be a particular fabric?  Lots of questions, with not many answers according to the ATO website.  TR 2003/16 is the place you need to go if you’re really looking for answers.  This ruling is packed with examples of what constitutes protective clothing and more importantly what doesn’t!

One last point on this topic – your protective clothing DOES NOT NEED A COMPANY LOGO to be able to claim a tax deduction for its purchase and associated laundry expenses.   

Sunglasses

Sunglasses are a legitimate claim for tradies if they are required to either:

  • Work outside for most of the day; or
  • They spend a lot of time driving as part of their job position.

Prescription sunglasses are also claimable.  Note, however, that if your sunglasses cost more than $300 you will need to depreciate them.  

Mobile Phone

Tradies often have to carry a mobile phone between work sites to make work related phone calls or be contactable by their boss.

If you use a mobile phone for both personal and work purposes, you can only attribute a percentage of the total cost to work-related expenses. The written evidence required for this is an analysis of 4 weeks of phone usage – dividing up how much usage was work-related, and how much was personal. This percentage can then be used as a calculation for the rest of the year.

Although the Tax Office suggests looking through a phone bill and working out the percentage of calls that were work-related vs. personal, it’s somewhat ambiguous now that mobile phone plans include add-on services like data, SMS, etc.  

Just make sure whatever approach you take in working out your work related percentage of your mobile phone, it is defensible in the event of an audit.  Note, that a letter from your employer stating why you need to use your mobile for work will be looked on favourably by the ATO.  I suggest you obtain one of these to keep on record, especially if your mobile phone claim is large.

Sunscreen – do I need a receipt?

As a tradie working outside in the sun, you are entitled to claim sunscreen.  Unless your total work related expenses are less than $300, then unfortunately you will need to keep a receipt to make this claim.  There is, however, one small clause in the substantiation rules that will allow you to claim sunscreen without a receipt as long as you record the purchase in a diary.  To be eligible for this bonus, each item of sunscreen must have cost less than $10, and you can’t claim over $200 in total under this part of the tax law.  To find out more about claiming items without a receipt read my article You don’t need a receipt for every tax deduction you want to claim.

 

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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Salary sacrificing a laptop. Is it really still worth it?

November 9th, 2013

Salary sacrificing a laptop 

Salary sacrificing a laptop was all the rage prior to 2008 when everyone could use what was known as the double dip rule.  The double dip rule allowed employees to purchase a laptop that was being used primarily for work via a salary sacrifice arrangement, and then double dip by claiming the balance as a tax deduction in their tax return.  

The double dip rule was costing the government thousands of dollars as they virtually gave away free laptops.  So, like any good thing with the government lately, it came to an end. 

You can now still salary sacrifice one laptop per year, but you will no longer be able to double dip and claim it as a tax deduction as well. 

Since the axing of the double dip rule, you don’t really hear as much about the benefits of salary sacrificing a laptop. Information available on the internet regarding this topic is very scarce, and certainly not pinned to the front page of the ATO website with bells and whistles.  

This begs the question – is it still worth it?

The short answer to this question is YES!

What is salary sacrifice?

Salary sacrifice is where an employee purchases a laptop with pre-tax income, therefore not paying tax on that part of their income.  For those employees in the top tax brackets, that means a saving of up to 40% on the cost of the laptop.  On top of that, the employee doesn’t  have to pay GST on the notebook, saving another 10%.  This essentially means that employees in the top tax bracket can get a laptop for half price.  

To take advantage of the salary sacrifice you need to make sure your device fits the ATO’s definition of a Portable Electronic Device.  A Portable electronic device is a device that is all of the following:

  • easily portable and designed for use away from an office environment
  • small and light
  • can operate without an external power supply
  • designed as a complete unit.

According to the ATO, examples of portable electronic devices include a mobile phone, calculator, personal digital assistant, laptop, portable printer, and portable global positioning system (GPS) navigation receiver.  Although it is not on this list, an iPad would most likely also pass as an electronic device.

Once you are satisfied that your device fits these ATO guidelines, you will then need to make sure you intend on using it primarily for work related purposes.

Primarily for use in the employees employment

In my eyes this is where the real benefits of salary sacrificing come in.  I did actually phone the ATO before writing this article just to confirm the following definition of what “primarily for use in the employees employment” actually means. The ATO’s answer was this:

 For a device to fall under the definition of “primarily for use in the employees employment”, it must be used for work purposes at least 51% of the time. 

Now, I’m not sure about you, but I found this percentage very interesting. It certainly changes the whole ball game when considering whether salary sacrificing a laptop is worthwhile!  The ATO is virtually saying you can use your laptop 49% of the time for private use, and still claim a 100% tax deduction via salary sacrifice.

For example, most people choose not to salary sacrifice.  Instead they purchase their own laptop and claim 60 – 80% work related use as a tax deduction, by depreciating it over three years in their tax return.  This seems rather silly when you can salary sacrifice it through your employer, and effectively get a 100% tax deduction up front in the year that you purchase it, on top of saving 10% GST on the cost of the laptop. 

At the end of the day, if your employer offers salary sacrifice, then depending on your individual circumstances, it’s definitely something you should consider.  And the benefits don’t just stop with the employee.  If you’re an employer who runs a small business, offering salary sacrifice can be a great incentive to help you retain quality staff.  No one likes a boss better than one who is flexible, and is seen to be going out of their way for their employees by putting them first.  Believe me, if you have ever been on the receiving end, where you were lucky enough to be able to salary sacrifice a laptop, you would realise how helpful it was.

 

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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.