Do you understand the distinction between a tax credit and a tax deduction? If not, you should read this blog post! There are two ways to lower your taxes: tax deductions and tax credits. A tax credit lowers taxes due dollar-for-dollar, but a tax deduction lowers the amount of income that is taxed.
Depending on your job, there are a variety of deductions and credits that are available. Today, we'll talk about a few of them and how they relate to Australian contractors and builders.
Taxes can be challenging, so we try to make them simpler for you by offering useful information like this blog post.
If you work as a builder or contractor in Australia, you are aware of how challenging it can be to manage taxes. We've put together this list of tax deduction advice for Australian builders and contractors to help you avoid some of the problems.
Some people make an effort to completely avoid paying their taxes, but it is not worthwhile. Tax deductions are meant to honour those who sincerely endeavour to abide by the law while earning money for both themselves and their country.
Where it is legal to do so, every taxpayer must take advantage of these options. Our manual should be helpful.
What Are Tax Deductions?
Your annual taxable income is decreased through tax deductions. The deductions typically come from the money you spend on tools or training as a contractor or business owner.
Assume, for illustration, that you made $10,000 as a contractor this past year. You pay tax at that rate of 10%, which is equal to $1,000 in taxes due before any deductions are taken into account.
However, you filed for a tax deduction because you had $2,000 in work-related expenses this year.
Since business expenses are tax deductible, the $2,000 you paid is subtracted from your $10,000 taxable income, leaving you with $8,000 in taxable income. Your tax rates will therefore be determined using your final taxable income of $8,000 rather than $10,000.
A 10% tax rate on $8,000 equals $800, so you effectively paid $200 less in taxes than you would have had tax deductions been used.
This is a very condensed explanation of how tax deductions operate, but it should still provide you with a fundamental knowledge of the process. Be careful not to confuse tax credits with tax deductions.
Tax deductions lower your taxable income whereas tax credits lower the total amount of your tax, however both of them lower your tax burden. Using the same example as before, you subtract $2,000 from your taxable income before paying $800 in taxes.
However, a $2,000 tax credit will subtract the same amount from your $1,000 total tax. As a result, the government owes you $1,000 because you paid more in taxes than you owed due to the fact that your tax credit is greater than your tax liability.
Unfortunately, most tax credits are non-refundable, so you won't get the difference back even if you paid more.
Tax Deductions For Builders And Constructors
Note: Tax deductions differ from nation to nation. This list, which covers advice that is typical and regularly used by contractors, shouldn't be taken as an exhaustive one. The easiest method to fully comprehend your tax deductions is to ask for assistance from an expert.
Tools And Work Equipment
The cost of the tools and equipment you use for your projects is typically tax deductible. Even better, practically every tool you own (and purchase) can be deducted from your tax liability.
Any instrument that costs less than $300 will often qualify for a full tax deduction for the fiscal year. The worth of your tools will eventually decrease, therefore it's better to get professional advice if they are well into the 4-5 figure range before making any further decisions.
Keep the receipts for all of your purchases, even those that cost less than $10, to minimise your tax obligations. You'll be shocked at how much little purchases build up to over the course of a year.
Keep in mind that you can deduct the cost of repairs and maintenance from your taxable income.
Transportation And Travel Expenses
As a builder, you will frequently travel to your customer's site for business. You are therefore fully entitled to and required to claim a tax deduction for your travel expenses.
Traveling within the country or abroad is another expense that qualifies for a tax deduction. However, it must be connected to your job or include learning a skill relevant to your line of work.
Always keep your travel receipts to show that the trip was necessary for your job to make things easy. Sort the receipts according to whether they are for business or personal use to make the deduction process move more smoothly.
However, since getting to and from work is not regarded as a labour expense, you cannot claim a tax deduction for it.
This also applies to instances in which you complete little duties linked to your job on your way home, such picking up the mail.
To correctly identify which of your trip expenses are allowable tax deductions, speak with a professional or accountant.
Tax Deductions For Work Uniforms And Clothing
A deductible expense is the cost of renting or purchasing work clothes. In order to simplify the tax deduction procedure, make sure that your business or workplace emblem is on the uniform. Laundry and repair expenditures are also included in the deductions.
In many nations, the expense of protective gear and footwear is also tax deductible. So long as the clothes is worn while working to protect you and keep you safe, you can claim a tax deduction.
Protective apparel that is frequently tax deductible includes:
- Protective footwear like rubber-soled shoes or work boots
- Eye safety gear, such as safety goggles or sunglasses
- Sunscreen or UV-protective eyewear are examples of sun protection gear
- Overalls and a work outfit
Trade Union And Association Fees
Your annual union dues or membership fees are tax deductible as long as the organisation has government approval. Additionally, the deduction is only valid if the expense relates to your job.
If the organisation is not acknowledged by the local government, you cannot recover your expenses. Additionally, you cannot claim a tax deduction for expenses that are not your own; for example, your employer cannot claim a tax deduction for any membership costs they pay.
Typically, your organisation will provide you with instructions on how to claim membership payments as tax deductions.
Home Office Expenses
If you use your house for work, you can deduct expenses from your taxes, including operational costs like your electricity bill.
You can only deduct expenses for work-related reasons; you cannot do so for items like rent or mortgage interest.
You can be eligible for a tax deduction if you must use a computer or smartphone for work-related purposes.
To prove to the authorities that you work from home, you might need some evidence. Two ways to achieve this are registering your home address as your place of business or using a time-tracking programme.
You may be able to deduct some expenses from your taxes, such as:
- Costs associated with buying laptops, smartphones, and printers for the home office
- Phone charges for calls made while at work. For the deduction to be authorised, it is better if you can demonstrate that you speak with your customers or employer frequently on the phone.
- Rlectricity costs for lighting, air conditioning, or heating the home.
- Costs for maintenance work like house cleaning or the cost of fixing your home office furnishings.
Tax Deductions for Building and Construction Employees
A variety of tax deductions are available to people who work in the building and construction sector depending on their occupation. We've developed a list of the deductions you can use before October 31 to help make things a bit simpler.
Tax Deductions for Building and Construction Workers: Meals, Transportation, and Vehicle
You might be able to deduct the cost of the vehicle if you use it for work-related activities like travelling to out-of-town conferences, meetings, or training sessions or for patient visits at their homes.
If you plan on claiming the costs associated with driving your own vehicle, you are need to keep a trip log in order to provide an estimate of the distance that was driven. For further information on motor vehicle claims, please visit the Vehicle Tax Deductions website.
Parking fees and tolls could be reimbursed if the trip satisfied the two requirements for claiming travel expenses that were presented before.
If your employer does not compensate you for the expenditures of an overnight stay that is required for work, you are eligible to take a deduction for the costs of food, accommodation, incidentals, and travel (including the cost of a car, flights, public transportation, and taxi fares).
Work Clothing Tax Deductions for Building and Construction Workers
You can deduct the cost of leasing, purchasing, laundering, and maintaining required uniforms with a company logo.
Additionally deductible are the costs of obtaining protective apparel and footwear, such as:
- Safety gear such steel-toed boots, steel-toed gloves, high-visibility clothes, overalls, heavy-duty shirts, and fire-resistant clothing are also recommended.
- Sunscreen and clothes with sun protection
Training Tax Deductions for Building and Construction Workers
As long as the education is related to your present employment and intended to enhance your skills or boost your earning potential in your current role, you are eligible to claim the costs of your own education.
- Attending conferences, seminars, and other training sessions like first aid lessons are all eligible expenses that can be deducted from your taxes. You are eligible to take a tax deduction for the cost of your textbooks, as well as your course fees, stationary, Internet connection, student union dues, travel expenses, and the depreciation of your equipment (such as computers)
Other Expenses for Tax Deductions for Building and Construction Workers
- You can deduct the expense of your business-related phone conversations, but you must preserve copies of a few itemised bills to prove your claim.
- It is possible to claim union and professional association dues.
- If you occasionally conduct business from your home office, you may be eligible to take a tax deduction for some of the expenses you incur as a result of doing so. The Internal Revenue Service allows a deduction of $0.52 per hour to cover the costs of lighting, heating, and air conditioning as well as the depreciation of common office furniture such chairs and desks. This deduction can be claimed by businesses that have at least one employee. In addition, you have the ability to individually claim expenditures for things like as office supplies, telephones, internet, computers, and other similar items.
- The purchase of work-related equipment under $300 can be immediately claimed. You may deduct depreciation costs incurred throughout the asset's lifetime if the equipment's cost is greater than $300.
- Both the expense of insuring instruments and the interest costs incurred by borrowing funds to purchase tools may be claimed.
- Although you can deduct the expense of renewing them, you cannot deduct the cost of obtaining work-related licences and certifications.
- You can claim journals, magazines, and other publications that are relevant to your sector.
Top Tax Tips For Building And Construction Workers
Navigating the tax system may be rather intimidating for many Australians (especially for those engaging in building and construction which is often project-based, contracted work). H&R Block Director of Tax Communications Mark Chapman has offered some professional tips to assist reduce the stress associated with filing tax returns and maximise your refund.
Contractor Or Employee?
In some professions, hiring workers as independent contractors as opposed to employees is typical. Choosing whether someone is an employee or a contractor may be a minefield for both the person making the decision and the company hiring them. Making a mistake can have a significant impact, with implications for both you and the company that hired you.
A self-employed individual hired for a specified activity, at an agreed-upon price, with a defined purpose in mind, typically over a specific time period, is known as a contractor (or consultant, as they are sometimes called).
They manage their own tax liabilities and set their own working hours. For accomplishing a task, contractors are paid a fee. They do not receive a salary or wage, and they are responsible for paying their own tax from gross income as well as contributing to their own superannuation.
In contrast, an employee's salary has tax withheld at the source and is paid by their employer for their required superannuation.
Vehicle And Travel Expenses
The most crucial thing to keep in mind is that you must keep records of any vehicle and travel expenses related to your job in order to make things simpler at tax time. If you drive for work, you may be able to deduct the business expenditures associated with using your vehicle for work-related travel.
Daily commutes to and from work are not eligible for reimbursement because they are deemed to be private travel, regardless of whether you pick up mail or perform other menial tasks en route, return to work for security calls or parent-teacher conferences, or work overtime without access to public transportation. There are several ways to claim car expenses, including:
- Your claim is based on a predetermined rate for each mile you travel for work. You are allowed to claim a maximum of 5,000 kilometres per car annually using this method. This type of claim is not applicable for you if your total annual mileage exceeds 5,000 kilometres. You must make a claim using the alternative technique of a logbook.
- The amount of the claim is determined by multiplying the business miles (up to 5,000 per vehicle) by the industry norm of 66 cents per mile. This sum accounts for all costs associated with maintaining the car (including depreciation).
- You must be able to show that you have travelled the declared number of kilometres even though you do not need to provide written proof. For instance, a log of travel for work (including the distance travelled) will do.
Your claim is based on the proportion of each car expense that was used for business. A logbook that must have been kept for at least 12 weeks and be updated every 5 years serves as the basis for this determination. You may deduct all operating costs for the vehicle at your proportion of business use through your logbook.
Over a 12-week period, the logbook must chronicle every business trip taken in a vehicle, including:
- the start and end dates of the log book period
- readings from the car's odometer at the beginning and conclusion of the time frame
- the distance in kilometres
- the percentage of businesses during the logbook period
You must note the following for each journey in the logbook:
- beginning and ending times of the trip
- readings on the odometer at the beginning and the end of the trip
- kilometre distance
- reasons for travelling
- you can record multiple trips you take in a row on the same day as a single trip
All receipts from the entire year must be kept in order to support your claims for things like insurance, service, and repairs. The start and end odometer readings for the year, which show the total number of miles driven, can be used to estimate the cost of gasoline.
Depreciation is computed at 25% of the vehicle's written-down value (using the Diminishing Value method).
If you incur these costs while carrying out your duties as an employee, you may be able to claim them as business-related car expenses, such as:
- Lugging about the necessary tools or equipment for the work
- Commuting between your house and another place of employment (such as a client's or supplier's office) before returning to your own place of employment or home at the end of the day
- Travelling as directed by your employer to conferences, meetings, or other activities
- Delivering or picking up products or packages as directed by your employer and linked to your job
Deductions For Work Clothing
There are some clothing-related deductions you can make when it comes to what you wear to work, including the expense of purchasing and maintaining work-specific attire like:
- distinctive and protective attire (i.e. not everyday wear)
- apparel that clearly distinguishes your line of work, such as chef's uniforms with checks
- to protect yourself from the danger of illness or injury provided by your profession or the environment in which you perform your job, you dress in appropriate clothing and footwear.
The goods must offer a enough level of defence against that risk in order to be regarded as protective, and they may include:
- Sunscreen and clothing that resists flames (including sunglasses)
- luminescent vests
- Non-slip shoes for nurses
- To prevent stains or damage to your usual clothing, you wear gloves, heavy-duty shirts and pants, rubber boots for concreters, steel-capped boots, overalls, smocks, and aprons while working.
Making a uniform expense claim:
- You can be recognised as an organization's employee by wearing a uniform. While you are at work, you must be required to wear the uniform, and a stringent policy assuring its enforcement must be in place. The price of your outfit is deductable if this is the situation.
- You can be eligible for a deduction if your shoes, socks, and stockings constitute a necessary component of a recognisable obligatory uniform. As is occasionally the case with flight attendants and nurses, the colour, style, and type of your uniform must be specified in your employer's uniform policy. If wearing a sweater to work is required, it could be possible to make a claim for just that one item.
- If the uniform is particular to your organisation and is not required, you may be able to request it. If the clothing was created especially for your employer, it is distinctive. Additionally, distinguishing clothes must not be sold to the general public and bear a permanent attachment of your employer's brand.
- A basic, logo-free uniform, such as generic white shirts or black trousers waiting to be worn by personnel, cannot be claimed for the cost of purchase or cleaning. To be tax deductible, non-obligatory work uniforms often need to have a design registered with AusIndustry. A single piece of clothing, such as a jumper, is not regarded as part of a non-compulsory work uniform, nor are shoes, socks, or stockings.
- The expenses for washing, drying, ironing, and dry cleaning acceptable business attire are allowable deductions. However, if both the amount of your claim and your total claim for work-related expenditures exceeds $300, you must keep written documentation for your laundry charges, such as diary entries and receipts. This excludes costs for a car, a food allowance, award transportation, and a travel allowance.
Deductions For Courses & Training
The majority of us desire to improve our performance at work, and acquiring the skills necessary to enhance your career is a key component of doing so. The good news is that you may frequently do that while also claiming a tax deduction on the expenses you incurred.
You can claim the following expenses in relation to your self-education:
- a place to stay and food (if you are away from home overnight)
- computer accessories (such as paper or ink)
- course costs or tuition
- value drop for depreciating goods like PCs or laptops (cost is greater than $300)
- purchases of $300 or less in equipment or technical instruments equipment repairs
- bus, aircraft, train, etc. fare
- operating expenses for a home office, such as heating and lighting.
- interest on any loans made to pay for the course
- using the internet
- parking charges
- making calls
- postage\sstationery
- union dues for students
- student fees for perks and services
- textbooks
- trade, expert, or scholarly journals
- travelling to and from the location where the course is held (only for work-related claims)
You can’t claim:
- Higher Education Loan Program (HELP) loan repayments (although the fees paid by some HELP loans are)
- Repayments for the Student Financial Supplement Scheme (SFSS)
- Office rent costs at home (such as mortgage interest or rent)
- When not sleeping away from home, meals
Mobile Phone Use
If you paid for these expenses and have receipts to back up your claims, you may be able to deduct the cost of using your personal phone for work-related tasks. If you use your phone for both personal and professional purposes, you must determine the percentage that most closely pertains to your professional use. You cannot claim phone costs that have already been paid for by your company.
You must select a typical four-week period beginning at some time during the tax year in order to calculate your deduction. You must calculate your percentage of work use over those four weeks if you have a phone plan with an itemised bill. After then, you can use that for the entire year.
Professional Associations, Magazine Subscriptions & Trade Union Fees
You might belong to an association as a result of your profession; the good news is that you can recoup your dues. Additionally, if you belong to a union, you can deduct your dues.
Magazines and subscriptions to publications related to your line of employment may reduce your return. Financial magazines and research services are reimbursable if you're an investor.
Tools & Equipment
If you need tools and equipment for employment, you may be able to deduct some or all of the cost. If the work is used for both business and personal expenses, you must divide the allowable deductions. The kind of deduction you can make will depend on the asset's cost:
- You may deduct something right away if it costs $300 or less and isn't a set.
- You may subtract the fall in value of things that cost more than $300 or are a part of a set. If necessary, you can also claim the expense of maintaining and insuring tools and equipment.
So, since there is no longer any justification, get ready today for a successful end of the fiscal year!
- Determine Your Tax Bracket. ...
- Create a Receipt System. ...
- Make a Charitable Payment. ...
- Review Your Deductions. ...
- Home and Car Expenses. ...
- Travel Expenses. ...
- Get Paid to Read News and Magazines. ...
- Put Your Money in a Super Fund.
How much can I claim with no receipts? The ATO generally says that if you have no receipts at all, but you did buy work-related items, then you can claim them up to a maximum value of $300. Chances are, you are eligible to claim more than $300. This could boost your tax refund considerably.