Deductions for cars are on the radar this end of financial year. Car expenses are a focus for the ATO so be aware of the latest ways of applying for them.
Starting in the 2015-16 Financial Year there were changes to claiming deductions for business-related car expenses for sole traders and individuals in a partnership. As of 1 July 2015, the one-third of actual expenses and the 12% of original value methods can no longer be used.
From your 2015-16 income tax return onwards there will be only two ways to calculate your claim.
Cents per km and logbook methods
The first method uses a single rate of 66 cents per kilometre for all motor vehicles (regardless of the engine size) up to a maximum of 5,000 business kilometres per car.
For drivers who wish to claim more than 5,000 business kilometres, the second method requires you to keep a logbook for a minimum continuous period of 12 weeks.
Odometer readings are needed and you can claim fuel and oil costs based on the logbook records, or from actual receipts. All other expenses will need written evidence.
For vehicles and other large work equipment, including machinery, that cost under $20,000 each, it’s worth taking advantage of the instant write-off available to small businesses – i.e. businesses with a total turnover of $2 million or less, a limit which most tradies fall under. (Note that if the Liberal Party win the 2016 election then this will be increased to $10 million annual turnover.)
The instant write-off means you receive the tax paid on the asset.
“We recommend using [this deduction]as much as possible,” Silver & Young Financial Adviser, Dimitri Argyros told Tools Trades Toys.
“This is a major benefit which we view as highly supportive of smaller businesses.”
The threshold was temporarily increased on 12 May 2015 to $20,000, an amount which applies whether the asset is new or second-hand and to its business portion if purchased up to 30 June 2017.
However, be aware that from 1 July 2017, the threshold will return to $1,000.
Electronics – no FBT now
Since April 1 2016, small businesses don’t incur fringe benefits tax when providing employees with multiple portable electronic devices.
Covering work-related laptops, tablets, calculators, GPS navigation receivers and mobile phones, this is a welcome provision recognising how crucial these devices are to businesses nowadays.
For employee tradespeople, the ATO spokesman highlighted several points when claiming deductions for some expenses: “You must have spent the money yourself and weren’t reimbursed; it must be related to your job; you must have a record to prove it ([with]limited exceptions).”
Business expenses and tax cuts
Also from the 2015‑16 income year, businesses can deduct a range of expenses associated with starting a new business, such as professional, legal and accounting advice.
This is in addition to other general expenses that are tax deductible for tradies, which Argyros advised includes:
- Vehicle expenses in travelling between work sites (repairs, registration, insurance as well as petrol)
- General work-related travel expenses including public transport
- Tools up to $300 in value
- Work-related phone expenses
- Uniform and protective clothing/equipment, including sunglasses/protective eyewear
- Laundry and dry cleaning of uniforms
- Insurance specific to your trade
- Union and association fees.
This Financial Year also sees a 1.5 percentage point tax cut delivered to all small businesses. This means the company tax rate will be reduced to 28.5 per cent for companies with a turnover of less than $2 million. (Note that if the Liberal Party win the 2016 election then this will mean a further cut of one percent.)
Unincorporated small businesses will benefit from a five per cent tax discount on income.
Record keeping made easy
The ATO spokesman emphasised that keeping good records of income and expenses is essential in ensuring compliance with GST, income tax and PAYG instalments.
Argyros agreed, offering two top tips for making record keeping easy: digital records and downloading the ATO app.
“We recommend getting all receipts emailed across as it is a lot easier to manage digital receipts than to deal with a massive pile of old faded ones at the end of the tax year… [or]take a photo of your receipt; [and]the ATO app, myDeductions… will help with record management throughout the year.”
“We believe organised tradies who take advantage of the long list of legal tax deductions are in a great position to reduce their tax bill,” Argyros said.
“It’s time to get organised.”