Most tradies have busy schedules with tight deadlines to meet. They may therefore not have enough time to think about their taxes. As a result, they may end up paying more taxes as they miss out on deductions that could make their taxes less. They may also not take advantage of changes in legislation that would increase their tax deductions.
Filing tax returns is an important obligation for tradies. However, you have to be keen on the legislation to effectively file your returns. Being up to date with the appropriate legislation will ensure you know all the tax deductions available to you.
Knowing the tax deductions you can claim is just but a part of what you need. As a tradie, you also need to have a good system for recording expenses and saving receipts. That will help you when you are filing your tax returns. It would make it easy to claim tax deductions as you would have the records and receipts to support your tax claim.
Tradie Tax Return Guide
- Factors Affecting Tradie Tax Return to Consider
- Tradie Tax Obligations
- Claiming Tools on Tax
- Deductions Tradies Can Claim on Tax
- What Tradies Can Claim Without Receipts
- Tips for Tradies to Prepare for Tax Time
Factors Affecting Tradie Tax Return That You Need to Consider
As you do your tax returns, you should be aware that taxes for tradies vary. That is because of the factors that affect your tax liability. Thus, you need to consider the effect the following factors have on your taxes.
Income: Income is one of the most important factors when doing tax returns. The amount of tax one pays is directly related to the income. As income increases, the tax liability also increases. Therefore, tradies with higher incomes will pay more taxes.
Business Structure: Different business structures have different tax obligations. A sole proprietorship would be taxed differently from a company. The business structure may also affect the tax deductions available for the tradie. As a tradie, you need to know the deductions you can claim.
GST: Your GST registration would have an impact on your tax return. GST-registered businesses have to account for GST when doing returns. The ATO expects such businesses to collect and remit GST while claiming credits on expenses.
Tax Obligations for Tradies
The average tradie tax return has to meet several tax obligations. The obligations depend on the nature of the business and the business structure. They include income tax, GST, and superannuation.
Every tradie must pay income tax on their income. Your total taxable income would determine the amount of tax payable based on the tax rate that applies to your income bracket.
Tradies whose businesses are registered for GST must pay GST. You must collect and remit GST on your sales to the ATO.
Lastly, tradies must make superannuation contributions. Self-employed tradies are required to make their superannuation contributions. Where a tradie is an employee of a business, the employer must make the superannuation contributions on behalf of the employee.
Non-compliance with tax obligations can be costly for a tradie. You may have to pay fines and penalties for non-compliance. For instance, failure to lodge tax returns attracts penalties. Similarly, if you fail to pay taxes, you will be forced to pay penalties for the failure. The fines and penalties vary with each tax offence.
Claiming Tools on Tax
If you are a tradie that uses tools in your work, you can claim deductions for the cost of purchase of the tools or equipment. However, the deductions depend on whether you run your own business or you are employed.
If you run your own business, you can claim an immediate deduction for the cost of tools. However, if you are employed, you can only claim an immediate deduction for tools that cost $300 or less. If the cost exceeds $300, you will need to write off the cost of the tools over its useful life.
If you purchase a set of tools, you cannot claim each tool separately. You can only claim a deduction for the depreciation of the whole set.
Any deduction claim for tools and equipment has to be for work purposes. Thus, if you use the tools for private purposes, you can only claim deductions for work-related use. Similarly, if you purchase a tool during the financial year, your claim should only be for the part of the year you owned the tool.
A tradie cannot claim deductions for tools supplied by another person or employer. You also cannot claim a deduction if you are reimbursed for the cost of the tool.
Deductions That Tradies Can Claim on Tax
As a tradie, you can claim any of the following deductions on tax.
- Clothing (must have the business logo)
- Protective items such as hard hats, safety glasses, and steel cap boots
- Sunscreen and sunglasses (if you work outside)
- Tools and equipment – purchase, lease or repairs
- Tablet, computer, and mobile phone expenses
- Work-related software and computer accessories
- Technical instruments
- Home office running expenses
- Desks, chairs and lamps
- Filing cabinets and bookshelves
- Professional libraries
- Internet expenses
- Training courses (must be directly related to your current role)
- Travel expenses (work-related)
- Car/vehicle expenses such as running expenses, parking, tolls, and fuel
- Licenses, permits and certifications
- Accommodation expenses when working away from home
- Union fees
However, some of the deductions are limited to some tradies while some of the deductions are limited by certain circumstances. You should therefore consult a tax agent to confirm the deductions available to you.
What Can Tradies Claim on Tax Without Receipts?
ATO requires you to have receipts or some written evidence from suppliers when you claim a tax deduction. The receipt or written evidence must show details of the supplier, including the name of the supplier, the amount of the expense, the nature of goods or services, the date the expense was paid, and the date of the document.
Despite the requirement to have receipts for tax deduction claims, under certain circumstances, you can claim deductions without receipts. ATO provides that tradies do not need to provide receipts for work-related expenses that are less than $10. However, the total claim for the small expenses should not exceed $200.
If you use your vehicle for work-related travel, ATO does not require you to keep receipts for work-related travel expenses. You do not have to keep receipts for fuel, maintenance, and other expenses relating to the vehicle. However, since the deduction would be claimed based on a set rate per kilometre, you have to keep a record of the number of kilometres travelled for work.
If you wear special clothing for work such as uniform or protective clothing, you can claim deductions on expenses relating to the purchase and maintenance of such clothing. You are not required to keep receipts of laundry expenses for your work clothing. However, you need to keep a record of the number of washes and the amount you spend.
Tips for Tradies to Prepare for Tax Time
Tax time can be quite stressful especially if you are not prepared. As a tradie, you can prepare for tax time by doing the following:
- Keep Complete and Accurate Records: Record-keeping is the most important aspect of doing your taxes. The records of your transactions are the basis of your tax information. Good record-keeping ensures you have all the income and expense information needed for your taxes. Always ensure you keep track of all your transaction documents such as invoices, receipts, and bank statements.
- Understand Your Business Structure: Different business structures have different tax obligations. It is important to understand your business structure as it would help you fulfil the tax obligations relevant to your business. Failure to understand your business structure may lead to failure to meet some obligations. It may also lead to paying more taxes than required due to failure to deduct some expenses.
- Check Your GST Registration: GST-registered businesses must collect and remit GST on sales. If your business is GST registered, you have to meet all the obligations as pertain to GST. You should also make sure you claim GST credits on expenses.
- Stay Up to Date With Tax Legislation: Tax laws and legislation change from time to time. If you are not attentive, a change in law may cost you fines for failure to meet obligations. You, therefore, need to keep abreast with changes in tax laws to ensure you meet all tax obligations as well as claim all deductions for which you are eligible.
- Consult Professionals: From time to time, it is important to consult professionals. That is especially important in case you are unsure of your tax obligations. A registered tax agent or accountant can help you understand your tax obligations and any new changes in legislation.
A tradie must maintain organized records of their expenses for effective tax filing. Good record-keeping will facilitate and ease your claims on tax deductions. It would also provide the evidence to justify your deduction claims on tax.
Eligibility for tax deductions varies based on circumstances and the nature of business engagements. Although there is a list of deductions available, the tax deductions are only available for tax-related expenses. Therefore, you can only claim deductions on the work-related portions of your expenses.
Keeping abreast with changes in legislation is an important part of claiming tax deductions effectively. Tradies need to know all the tax deductions they are eligible to claim to ensure they maximize their claims. It is important to consult with your tax agent annually so that you are up-to-date with legislative changes.