A business owners and tax payer’s guide
One of the most common questions we answer around tax time is “can I claim this on my tax”. If the answer is a no, then it’s “why not?” So I thought I’d take the time to clear some questions for those who don’t already know the answers. Who knows, you might learn something new that you will be able to talk to your accountant about claiming (or plan to purchase and claim next tax year).
Travel expenses
Can you claim on travel expenses? The answer is yes.
However, it comes with a catch. Like any tax claim you make, it has to be related to you earning your income. So when it comes to travel, you are allowed to claim vehicle and other travel expenses that are directly connected with your work. You can even claim travel expenses to your accountant for meetings or to prepare your tax return!
Here’s what you can claim – cost of travelling:
- Between two separate workplaces
- From your normal workplace to an alternative workplace – for example, if your business is based in an office and you have to travel to a client meeting.
- If you have shifting places of employment – more than one place you regularly work
- If you need to carry around tools or equipment that you use for work.
Can you claim the travel expenses between home and your usual place of work? Unfortunately no. Although the travel is linked with earning income, this travel is classified as private travel – even if you are on call or doing night shifts.
However, you can claim travel between your regular place of work and a second job (ie: an alternative source of income) and home (or vice versa).
Education expenses
Can you claim on education expenses? Once again, yes – but it depends.
If there is a direct link between what you are studying and you earning your income, go right ahead and claim those expenses on tax. These could include your school fees, text books, travel fares, parking fees and the list goes on. However, the caveat is that the course that you undertake must have a sufficient connection to your current employment at the time.
So if you’re an accountant, studying superannuation planning or post grad tax law for example – the link to the income you currently earn is really strong.
However, that same accountant would struggle if they were to study food technology (even if that was going to be their next career – it’s not how they’re currently earning their income. And you can’t claim study expenses now against possible future income in a different field.
Can you claim on education loan programs such as HECS or FEE-HELP? The answer is no.
Home office expenses
Can you claim home office expenses? Yes, yes and yes! But…
Good news for home-based business owners, you can claim on occupancy, running and motor vehicle expenses. If you run your business from home, occupancy expenses include rental payments, mortgage interest, council rates and home insurance payments.
However, you do have to take a “interest deductibility test” to identify the place as a business.
Now whilst that might seem like a huge plus – be warned the ATO rarely giveth without the right to just as easily taketh away. If you’re claiming 20% of your home mortgage (and you really use 20%), the ATO will happily charge you 20% of the capital gain you make on your property upon the sale of your home property asset.
Running expenses are a whole different kettle of fish. Any costs that result from you using facilities within your home as part of your business, such as equipment, phone costs, electricity costs, cleaning expenses, etc, can legitimately be claimed. But again, only the percentage of costs that relate to your business.
So how can you keep track of all of these expenses?
As a small business owner, the most important thing to remember is to document everything – keep all receipts and tax invoices. We recommend you keep a logbook to track all of your business expenses, including travel, education, home office, as well as any other expenses you come across (or better still use Xero and we can help you with that).
Always complete diary entries to record your small expenses or expenses you can’t get any kind of evidence for, regardless of the amount. And when it comes to running expenses, try to work out your usage numbers (or hours).
Along with your logbook, it’s important to keep all of your receipts of these purchases and expenses or any other written evidence. Itemised bills are the safest way to go – including phone bills so that if the ATO do come knocking, you’ve got all the proof you need.
As with all things taxation, especially given the rules change frequently, it’s always best to seek professional advice based on your personal circumstances.
If you have any questions or need some help managing your taxes, don’t hesitate to give us a call on (02) 6023 1700. We look forward to hearing from you.
