Time to focus on tax
It’s nearly the end of the financial year. That means that if you haven’t yet focused on getting your financial house in order before tax time begins, now is the time to take steps to make sure your paperwork is up to date, accurate and complete and that you’re in a position to claim every deduction you’re entitled to when you complete this year’s tax return. H&R Block’s director of tax communications Mark Chapman provides tips to ensure you’re ready.
The general rule for claiming tax deductions is that if you’ve incurred an expense as part of your job or business, haven’t been reimbursed and are able to substantiate that expense, you’re able to claim it as a deduction against your taxable income.
So what are some of the key deductions that plumbers could be claiming this tax time?
Tools and equipment
If you’re in business, and your business has an aggregate annual turnover of less than $50 million, you can claim an immediate deduction for all capital purchases which cost less than $30,000. For plumbers who run their own business, this is a crucial tax break because it means you can get immediate tax relief for all purchases of tools and equipment costing less than $30,000, rather than having to depreciate them over their useful life, as used to be the case. The $30,000 threshold is net of GST, so that means the relief applies to items priced at up to $33,000 including GST.
Note that this threshold used to be $20,000 until 29 January 2019 and then it was briefly $25,000 for purchases made between 29 January 2019 and 2 April 2019. The tax break was also only available for businesses with a turnover up to $10 million until 2 April 2019. So, if you’ve acquired tools and equipment during the course of this year, check with your accountant whether the instant write-off will apply.
Second hand tools and equipment are also covered by the tax break, which could also potentially apply to items like motor vehicles (a second hand ute or van, for instance) and technology items like computers for the office. If the items are purchased and installed ready for use by 30 June, you minimise the time between the capital outlay and claiming the tax deduction in your tax return.
For plumbers who are in employment, the tax breaks aren’t so generous. You can immediately write-of the cost of tools and equipment costing less than $300 (provided the item isn’t part of a set costing more than $300). More expensive items need to be depreciated over the useful life.
If you use your personal mobile for work purposes, you can claim a deduction for the cost of work-related calls you make, and also for any data you use whilst using the internet on your phone or at home (sending or receiving work-related emails for instance). In addition, if you were on call, you can also claim the appropriate proportion of the cost of phone rental, regardless of whether you were actually contacted whilst on call or not. You’ll need to keep a log of phone/internet usage over a four week period, from which you can work out a business related percentage to apply over the whole year.
If you incur parking fees and tolls (but not fines) whilst you’re working, they are tax deductible. Typical journeys which will qualify include traveling between work sites and traveling to work-related courses (particularly relevant if you’re an apprentice).
Motor Vehicle Expenses
If you use your own motor vehicle as part of your job or business, you can claim a tax deduction for the costs associated with the work-related use.
There are two methods of calculating your deduction:
- The cents per kilometre method. Simply multiply all your business or work-related kilometres by a flat rate allowance of 68 cents per kilometre. You’ll need to keep a record of all your business journeys and you can only claim up to 5,000kms per vehicle (so if you used more than one vehicle, each of those vehicles has its own 5,000km limit.
- The logbook method. This is an alternative to the cents per kilometre method and must be used if you travelled more than 5,000 business km’s in your vehicle. You can claim the actual costs incurred, including petrol, servicing, insurance, and depreciation on the vehicle. You need to keep records of all expenses (invoices, receipts, etc) as well as a logbook, which is used to work out the work-related portion of your vehicle use. You need to keep the logbook over a 12 week period but once you’ve done that, the logbook can be used for 5 years.
If you use a vehicle which weighs over one tonne (as will be the case with many commercial vehicles and bigger utes), you must claim the actual expenses you incur.
Remember, you can’t claim the cost of driving from home to work, unless you are required to carry bulky tools and equipment in your vehicle (perhaps because there is nowhere secure at work to store them).
Sun protection including sunglasses and sunscreen
Items of clothing which protect you from injury or illness at work are tax deductible. If you work outside, that includes sunglasses and sunscreen. More generally, it also covers items like work boots, gloves, hi-vis vests and heavy duty shirts and trousers. Normal clothing, like jeans and socks, isn’t tax deductible.