‘The Killers’ summed it up pretty well — ‘The world that tradies live in’ requires them to keep receipts and not just bank statements.
The substantiation provisions of Division 900 of the Income Tax Assessment Act 1997 require that certain written evidence be maintained in respect of work expenses, car expenses and business travel expenses.
This evidence needs to be kept for five years from the due date for lodgement of the tax return in which the deduction is claimed.
SEE TAX FOR TRADIES AT CARPENTRY EXPO – STAND C07
If the return is lodged after the due date, the five years start from this later date.
Tradies are only ‘human’ and after a hard day’s work on the tools they can shove receipts into glove or shoe boxes.
There are electronic apps that can assist tradies – e.g. Xero’s Hubdoc where tradies can snap a picture of a receipt which is sent to an email address accessible by their tax adviser.
The picture becomes a becomes an audit proof document.
It is no good earning big bucks if the tax man gets most of it.
Tradies should only pay the fair tax that they are legally liable to pay …and no more.
Motor vehicle expenses
The logbook method rather than the ‘cents per kilometre’ method is generally the better option to maximise claims for motor vehicle expenses.
A motor vehicle is classified as a road vehicle that carries a load of less than one tonne and less than 9 passengers.
There are electronic apps available that can make the process easier.
The ATO is strict on the completeness of the logbook – odometer readings, reason for and kilometres travelled for the trip etc.
It needs to be retained for at least 12 consecutive weeks meticulously in the tax year. The 12-week period can cross over two financial years, provided the period is representative of your travel throughout the year.
This means if you start your logbook late in May or early June, you can continue to record information into July through to September to cover the 12 weeks required.
Each logbook you keep is valid for five years, but you may start a new logbook at any time.
SEE TAX FOR TRADIES AT CARPENTRY EXPO – STAND C07
If you establish your business-use percentage using a logbook from an earlier year, you must keep that logbook and maintain odometer readings in the following years.
However, ALL road vehicles whether classified as motor vehicles or not should retain a logbook.
As a tax auditor said once ‘how else can you substantiate work related use if you do not keep a logbook?’ This advice applies to vehicles owned by Companies and Trusts as well as sole traders and employees.
Writing off Assets immediately- < $20,000 cost
Employee tradie – can claim depreciation only of each asset used for work related purposes where it costs => $300. This is 15 per cent in year of purchase and 30 per cent subsequently. Assets costing <$300 can be written off immediately.
Self -employed tradie and assets owned by companies and trading trusts– can claim full cost immediately of each
asset in relation to its business use.
Become a property mogul — Set up your own super fund (SMSF)
Consider setting up your own Self-Managed Superannuation Fund (SMSF) to buy property.
Assets within a super fund including SMSFs are protected from creditors. At retirement, there is no capital gains tax payable on the sale of properties within the SMSF where the SMSF is in pension phase.
In any case the tax is only 10 per cent on the capital gain if sold before retirement provided it is held for 12 months.
Based at University Hill in Bundoora to Melbourne’s north, Michael works along with his elite team – Operations Manager Ross Walker and Administration Manager Melissa Wright.