TAX TIPS: con­trac­tor & project-based work

The most im­por­tant thing to re­mem­ber when it comes to work-re­lated ve­hi­cle and travel ex­penses is that you must keep records, mak­ing ev­ery­thing eas­ier come tax time.

Australasian Timber - - TAXATION -

For many Aus­tralians, nav­i­gat­ing the tax sys­tem can be quite over­whelm­ing (es­pe­cially for those en­gag­ing in project-based con­tracted work). To help take the stress out of their tax re­turns and max­imise your re­turn, H&R Block Di­rec­tor of Tax Com­mu­ni­ca­tions, Mark Chap­man, has pro­vided some ex­pert ad­vice.

Con­trac­tor or em­ployee?

It’s com­mon in cer­tain trades for peo­ple to be taken on as in­de­pen­dent con­trac­tors rather than em­ploy­ees. De­cid­ing whether a per­son is a con­trac­tor or an em­ployee can be a mine­field, both for the in­di­vid­ual and for the busi­ness tak­ing them on. Get­ting it wrong can have a big im­pact, with con­se­quences both for you and the busi­ness that has en­gaged your ser­vices.

● A con­trac­tor (or con­sul­tants as they are some­times called) is a self-em­ployed per­son en­gaged for a spe­cific task, at an agreed price, with a spe­cific goal in mind, of­ten over a set pe­riod of time. They set their own hours of work and take care of their own tax obli­ga­tions. Con­trac­tors are paid a fee for com­plet­ing an as­sign­ment. They don’t re­ceive a salary or wage and need to pay their own tax from their gross earn­ings, whilst also mak­ing their own su­per­an­nu­a­tion con­tri­bu­tions.

● By com­par­i­son, an em­ployee has tax de­ducted at source from their salary and re­ceives com­pul­sory su­per­an­nu­a­tion pay­ments from their em­ployer.

Ve­hi­cle and travel ex­penses

The most im­por­tant thing to re­mem­ber when it comes to work-re­lated ve­hi­cle and travel ex­penses is that you must keep records, mak­ing ev­ery­thing eas­ier come tax time. If you use your car for work you are en­ti­tled to claim the work re­lated travel ex­penses that re­late to the busi­ness costs of us­ing your car to do your job.

Trav­el­ling to and from work on a daily ba­sis can­not be claimed as this is con­sid­ered as pri­vate travel, even if: you do mi­nor tasks on the way to work, such as pick­ing up mail; you travel back to work for a se­cu­rity call out or par­ent teacher in­ter­views; you work over­time and no pub­lic trans­port is avail­able to use to get you home. Meth­ods you can use to claim car ex­penses in­clude:

● Cents per kilo­me­tre:

○ Your claim is based on a set rate for each busi­ness kilo­me­tre you travel. Un­der this method you are el­i­gi­ble to claim up to a max­i­mum of 5,000 kilo­me­tres per year, per ve­hi­cle. If you travel in ex­cess of 5,000 kilo­me­tres this method of claim is not ap­pro­pri­ate to you. You will need to use the al­ter­nate method of a log­book to claim.

The claim value is cal­cu­lated by mul­ti­ply­ing the to­tal busi­ness kilo­me­tres trav­elled (lim­ited to 5,000 per ve­hi­cle) by the stan­dard rate of 66 cents per kilo­me­tre. This fig­ure takes into ac­count all the ve­hi­cle run­ning ex­penses (in­clud­ing de­pre­ci­a­tion).

You do not need writ­ten ev­i­dence, how­ever you need to be able to demon­strate that you have cov­ered the kilo­me­tres claimed. A di­ary of work-re­lated jour­neys (in­clud­ing the kilo­me­tres trav­elled) will suf­fice.

● Log­book:

○ Your claim is based on the busi­ness use per­cent­age of each car ex­pense. This is de­ter­mined by a log book that must have been kept for a min­i­mum 12 week pe­riod, and must be up­dated ev­ery 5 years. Through your log­book you can claim all ex­penses that re­late to the op­er­a­tion of the car, at your per­cent­age of busi­ness use.

○ The log­book must record all busi­ness jour­neys made in the car over the 12 week pe­riod that it records, de­tail­ing;

□ when the log book pe­riod be­gins and ends □ the car’s odome­ter read­ings at the start and

end of the pe­riod

□ the to­tal kilo­me­tres trav­elled

□ the busi­ness per­cent­age for the log­book pe­riod

For each jour­ney in the log­book, you must record: start and fin­ish­ing times of the jour­ney odome­ter read­ings at the start and end of the jour­ney kilo­me­tres trav­elled rea­sons for the jour­ney if you make two or more jour­neys in a row on the same day, you can record them as a sin­gle jour­ney.

You will need to keep all re­ceipts through­out the year to jus­tify your claim, such as in­sur­ance, ser­vic­ing and re­pairs. Petrol can be es­ti­mated us­ing the start and end odome­ter read­ings for the year, in­di­cat­ing the to­tal kilo­me­tres trav­elled. De­pre­ci­a­tion is cal­cu­lated as 25% of the writ­ten down value of the car (us­ing the Di­min­ish­ing Value method).

You can claim the cost of work-re­lated car ex­penses if they are in­curred whilst per­form­ing your job as an em­ployee, such as:

○ Car­ry­ing tools or equip­ment re­quired to

com­plete your job

○ Trav­el­ling from your home to an al­ter­na­tive workspace (such as a client/sup­plier’s of­fice), and then back to your own work­place or home at the end of the day Trav­el­ling be­tween two sep­a­rate work­places where you are em­ployed

Trav­el­ling to con­fer­ences, meet­ings or other events as re­quired by your em­ployer De­liv­er­ing or pick­ing up items/pack­ages re­lated to your job, and as re­quired by your em­ployer

De­duc­tions for work cloth­ing

When it comes to what you wear to work, there are some clothes-re­lated de­duc­tions you can claim – the cost of buy­ing and clean­ing oc­cu­pa­tion-spe­cific cloth­ing such as:

pro­tec­tive and unique cloth­ing (i.e. not ev­ery­day wear) cloth­ing that eas­ily iden­ti­fies your oc­cu­pa­tion, like checked chef trousers dis­tinc­tive uni­forms cloth­ing and footwear that you wear to pro­tect your­self from the risk of ill­ness or in­jury posed by your job or the en­vi­ron­ment in which you do your job. To be con­sid­ered pro­tec­tive, the items must pro­vide a suf­fi­cient de­gree of pro­tec­tion against that risk, and might in­clude: □ fire-re­sis­tant and sun-pro­tec­tion cloth­ing

(in­clud­ing sun­glasses)

□ hi-vis vests

□ non-slip nurse’s shoes

□ rub­ber boots for con­creters

□ steel-capped boots, gloves, over­alls, and heavy-duty shirts and trousers over­alls, smocks and aprons you wear to avoid dam­age or soil­ing to your or­di­nary clothes whilst at work.

Claim­ing the cost of work uni­forms:

● Com­pul­sory work uni­forms

○ A uni­form iden­ti­fies you as an em­ployee of an or­gan­i­sa­tion. The uni­form must be com­pul­sory to wear while you’re at work with a strictly en­forced pol­icy en­sur­ing its en­force­ment. If this is the cir­cum­stance sur­round­ing your uni­form, the cost is de­ductible.

○ Where your shoes, socks and stock­ings are an es­sen­tial part of a dis­tinc­tive com­pul­sory uni­form, you may be able to claim a de­duc­tion. Their colour, style and type must be spec­i­fied in your em­ployer’s uni­form pol­icy as is some­times the case with air stew­ardesses and nurses. It might be pos­si­ble to claim for a sin­gle item of dis­tinc­tive cloth­ing, such as a jumper if it’s com­pul­sory to wear to work.

● Non-com­pul­sory work uni­forms

○ In some in­stances, you can claim for a non­com­pul­sory uni­form, given that it’s unique

and dis­tinc­tive to your or­gan­i­sa­tion. Cloth­ing is con­sid­ered unique if it’s been de­signed and made solely for your em­ployer. Dis­tinc­tive cloth­ing must have your em­ployer’s logo per­ma­nently at­tached and not be avail­able for pub­lic pur­chase.

○ You can’t claim the cost of pur­chas­ing or clean­ing a plain, logo-free uni­form, such as generic white shirts or black trousers that wait staff wear. Non-com­pul­sory work uni­forms are usu­ally re­quired to have a de­sign reg­is­tered with AusIn­dus­try in or­der to be tax de­ductible. Shoes, socks and stock­ings aren’t con­sid­ered part of a non-com­pul­sory work uni­form and nei­ther is a sin­gle item such as a jumper.

It’s pos­si­ble to claim the costs of wash­ing, dry­ing, iron­ing and dry-clean­ing el­i­gi­ble work clothes. Writ­ten ev­i­dence for your laun­dry ex­penses, such as di­ary en­tries and re­ceipts must be kept if both the amount of your claim is greater than $150, and your to­tal claim for work-re­lated ex­penses ex­ceeds $300. This doesn’t in­clude car, meal al­lowance, award trans­port pay­ments and travel al­lowance ex­penses.

De­duc­tions for cour­ses and train­ing

Most of us want to bet­ter our­selves at work and a large part of do­ing that is equip­ping your­self with the skills you need to ad­vance your ca­reer. The good news is that you can of­ten do that, and claim a tax break on the costs you in­curred at the same time.

Self-ed­u­ca­tion ex­penses are tax de­ductible when the course you un­der­take leads to a for­mal qual­i­fi­ca­tion and has a suf­fi­cient con­nec­tion to your cur­rent em­ploy­ment and:

○ main­tains or im­proves the spe­cific skills or knowl­edge you re­quire in your cur­rent em­ploy­ment, or

○ re­sults in, or is likely to re­sult in, an in­crease

in your in­come from your cur­rent em­ploy­ment.

You can’t claim a de­duc­tion for self-ed­u­ca­tion ex­penses for a course that does not have a suf­fi­cient con­nec­tion to your cur­rent em­ploy­ment even though it:

○ might be gen­er­ally re­lated to it, or ○ en­ables you to get new em­ploy­ment.

You can claim the fol­low­ing ex­penses in re­la­tion to your self-ed­u­ca­tion:

ac­com­mo­da­tion and meals (if you are away from home overnight) com­puter con­sum­ables (such as pa­per or ink) course or tu­ition fees de­cline in value for de­pre­ci­at­ing as­sets such as com­put­ers or lap­tops (cost ex­ceeds $300) pur­chase of equip­ment or tech­ni­cal in­stru­ments cost­ing $300 or less equip­ment re­pairs fares (bus/plane/train, etc.) home of­fice run­ning costs (for any home study) such as heat, light, etc. in­ter­est on any money bor­rowed to fund the course in­ter­net us­age park­ing fees phone calls postage stationery stu­dent union fees stu­dent ser­vices and ameni­ties fees text­books trade, pro­fes­sional, or aca­demic jour­nals travel to-and-from the place where the course takes place (only for work-re­lated claims)

You can’t claim:

re­pay­ments of Higher Ed­u­ca­tion Loan Pro­gram (HELP) loans (al­though the fees paid by some HELP loans are)

Stu­dent Fi­nan­cial Sup­ple­ment Scheme (SFSS) re­pay­ments home of­fice oc­cu­pancy ex­penses (such as mort­gage in­ter­est or rent) meals where not sleep­ing away from home

Mo­bile phone use

If you use your own phone for work pur­poses, you can claim a de­duc­tion if you paid for these costs and have records to sup­port your claims. If you use your phone for both work and pri­vate use, you will need to work out the per­cent­age that rea­son­ably re­lates to your work use. You can’t dou­ble-dip and claim for phone ex­penses that have been re­im­bursed by your em­ployer.

To work out your de­duc­tion, you need to choose a typ­i­cal four-week pe­riod from some point in the tax year.

If you have a phone plan where you re­ceive an itemised bill, you need to de­ter­mine your per­cent­age of work use over that 4-week pe­riod. You can then ap­ply that to the full year.

Pro­fes­sional as­so­ci­a­tions, mag­a­zine sub­scrip­tions and trade union fees

As a part of your pro­fes­sion, you may be a mem­ber of an as­so­ci­a­tion – the good news is, you can claim your sub­scrip­tions. If you’re part of a trade union, your fees are also de­ductible.

Mag­a­zines can make a dent in your re­turn, as can sub­scrip­tions to mags as­so­ci­ated with your line of work. If you’re an in­vestor, fi­nan­cial pub­li­ca­tions and re­search ser­vices are claimable.

Tools & equip­ment

You can claim a de­duc­tion for some or all of the cost for tools and equip­ment if you re­quire it for work pur­poses. If the work is used for both work and pri­vate ex­penses you need to di­vide what you can claim. The cost of the as­set will af­fect the type of de­duc­tion you can claim:

○ items that cost $300 or less and don’t form part

of a set you can claim an im­me­di­ate de­duc­tion ○ items that cost over then $300 or form part of a set, you can claim a de­duc­tion for their de­cline in value. You can also claim the cost of re­pair­ing and in­sur­ing tools and equip­ment if need be.

Mark Chap­man, H+R Block Di­rec­tor Tax Com­mu­ni­ca­tions

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