Last week we mentioned a few items that would assist in generating a tax deduction. This week we will look at a few specific areas.

The Education Tax Refund allows you to get back up to 50% of what you have spent (up to a certain amount) on your children’s text books, pens, pencils, etc, computer stationary, education computer programs, internet connection fees etc.  It is important that you retain all receipts for these books, , printer cartridges  etc.

Investment properties.  If you own a rental property there are many items that can be claimed as a tax deduction against the rental income. By the same token, there are a lot of expenses that cannot be claimed.

Items that can be claimed against the rental income include agent fees, insurance, council and water rates, some lawn maintenance, minor repairs, depreciation on items such as ceiling fans, floor coverings such as carpets, linoleum and floating timber, gas heaters, hot water systems (excluding piping), surround sound systems, ducted vacuum cleaning systems etc. If the property is rented furnished then there are many more items available for depreciation.

Items that are not tax deductible include major renovations such as a new kitchen or bathroom. Parts of the renovation may be allowable such as cook tops, dishwashers, freezers, ovens and range hoods but the cost of the cupboards and bench tops is not allowable.

When purchasing an investment property it is always advisable to consider the long term benefits/ detriments of such an acquisition. It may be purchased 99% in the name of the primary income earner so as to maximise the tax deduction but on sale can cost more in capital gains tax.  Talk to us about ways this may be used to your advantage.

If you are thinking of moving and want to keep your current home as an investment property, this can be done tax effectively if you talk to your accountant first.

Superannuation contributions can generate a tax refund in some instances. Contribute to your non working spouse’s super fund. A contribution of $3,000 may get you a $540 refund. A contribution of $1,000 can generate a co-contribution of $1,000 if you earn less than $31,920. This is money for nothing and can certainly help to put something aside for the grey years.

If you salary sacrifice to super you should ensure that your contribution does not exceed the maximum contribution allowable, otherwise you could be paying another 46.5% tax on that contribution.

The rules have changed again this year and any losses on rental income (negative gearing), salary sacrificed superannuation and interest on geared shares are to be added back to income to determine eligibility for various government payment such as Family Tax Benefit Part A or B.

This add-back also impacts on your ability to claim the superannuation co-contribution.

If you have any questions on any of this please send us an email to info@coulcher.com.au.

At this time of year we need to assess what we have done during the course of the past 12 months to see if there is any way we can generate a tax refund when we have our tax return prepared.

It is my belief that tax deductions are over rated. Why would you give someone $100 just so you could get a refund of $30 (or less).  The best thing to do about a tax deduction is to look at what you are spending and if you can turn that spend into a tax deduction then all the better.

Depending upon your occupation, you can claim such items as tools of trade, purchase and maintenance of protective clothing, cleaning of that protective clothing, union fees, membership of professional bodies, subscription to professional journals, education expenses related to maintaining job skills whereby the education may be a refresher course related to a specific part of the job. In my industry my staff and I attend regular tax schools whereby we are brought up to date on changes to tax rules, tax forms etc. It may be that you need to be aware of changes to occupational health & safety rules etc so you pay to attend updates on this subject. The cost of the course is tax deductible as is the cost of travel and if the course is in another city then the cost of overnight accommodation, if required, is also a tax deduction.

Other self education may be deductible if it is relevant to the earning of your wages and is relevant to your current duties. Education to get a promotion or another job is not tax deductible. The cost of uniforms is usually a tax deduction but if you work for a fashion shop and the boss expects you to buy clothes from that shop then the purchase of the clothes is not a tax deduction.

If you travel between job sites on a daily basis or the place of work changes from day to day or week to week then the cost of travel may be a tax deduction.  With any of the claims for travel you must ensure that you keep accurate records. If you use a motor vehicle then document the odometer reading at the start and finish of each journey. It is amazing how many people rip themselves off by not keeping accurate records. If you go to TAFE as an apprentice, log the distance travelled, this is a tax deduction. The trip from home to TAFE and return is a tax deduction. The distance will not vary so measure it once and you have that measurement for all time. Also with TAFE students, keep a record of what you spend on books, stationery etc. It all adds up.

More next week.

Last week we looked at work clothing, whereby a uniform may be compulsory or non compulsory. With compulsory uniforms you can claim the cost of buying and maintaining those uniforms. With non compulsory uniforms each case is treated on its merits.

Protective clothing is different in that in the main it is tax deductible, an example would be steel capped boots or wet weather gear worn when using chemicals or high pressure hoses. Sun glasses, sun screen and hats are protective clothing for outdoor workers and other taxpayers required to spend part of their day out of the office. The ATO have advised that drill trousers, shorts, shirts and conventional footwear such as sports shoes and joggers are not considered protective clothing, they are of a private nature.

Protective clothing is the clothing and footwear that you wear to protect yourself from the risk of illness or injury posed by your income earning activities or the environment in which you are required to carry them out. To be considered protective the items must provide a sufficient degree of protection against that risk. Examples of protective clothing include: fire resistant and sun protective clothing; safety coloured vests; non slip nurses shoes; rubber boots for concreters; steel capped boots; gloves; overalls; and heavy duty shirts and trousers.

The tax office also considers that dust coats, smocks and aprons you wear to avoid damage or soiling to your ordinary clothes during the course of your income earning activities to be protective clothing. Ordinary clothes such as jeans, drill shirts and shorts, trousers and socks that lack protective qualities designed for the risks of your work are not protective clothing.

I often have clients ask about claiming for the purchase of clothing that must be purchased as a condition of employment. This usually occurs when someone works for a fashion boutique, whereby the sales staff must purchase their clothing from that shop and this is part of the employers advertising campaign. “My staff wear these clothes so they must be good” type of exercise. The fact that the staff would not be seen dead in that type of garment outside of the shop is irrelevant. The employer in some cases encourages the employee by offering a discount on the clothing purchase. I have been told that the generous employers offer a 55 discount. (wow). Unfortunately, the purchase and laundering of these clothes is not a tax deduction.

For more information about claiming a deduction for expenses associated with your work related clothing you could refer to Tax Rulings TR 94/22; TR 97/12; TR 2003/13 and tax determination TD 1999/62. Reading of these publications is also a cure for insomnia.

One of the most exciting parts of the Rudd/Swan 2010 budget was the promise to make lodgement of income tax returns easier.

The newspapers covered this in some detail without understanding what they were saying.

I refer to the Australian newspaper of 12^th May where they start their article by stating ‘Kevin Rudd’s budget pitch to working families centres on continued income tax cuts, reducing tax on bank interest and removing the angst and aggravation of completing the annual tax return”

Angst and aggravation? Lets get real. No comment has been made on the fact that you still need to lodge a tax return.

Now there are already millions of Australians who lodge their tax returns online, so this system may help. There are also millions of Australians who have no idea on how to turn on a computer let alone navigate around the various screens. This “NEW” tax system requires the taxpayer to lodge their return electronically that is via computer, talk about angst and aggravation.

Continuing on the same vein, this change, which comes into effect in 3 years, is what Wayne Swan termed the “tick & flick’ system of lodging a tax return. Once you get started you most certainly will want to give it the flick.

Again quoting from the Australian of 12^th May 2010 Wayne said “We have decided to provide taxpayers with the choice of a standard deduction instead of the hassle of shoe boxes full of receipts and the cost of professional assistance” – “This means less time with the Tax pack, more time with loved ones, and for 6.4 million Australians, it also means a bigger tax refund”

Excuse me!

Treasury anticipates that about 66% of those who opt in for 21012/13 will have a taxable income of less than $50,000, dropping to about 60% in 2103-14. Treasury said the change would deliver an average $192.00 in tax savings to taxpayers, amongst other benefits.

Well this has got me totally perplexed. How can a $500 tax deduction @ 31.5% tax generate an average tax refund of $192.00 when 31.5% of $500 is only $157.50, to this we can add back a bit of the low Income Rebate of about $25 we have $182.50 so where is the average $192.00.

Now let’s add some fact to the fiction put forward by Mr Swan, Mr Rudd and treasury. Are you in a union? Average union fees are more than $500.00 so you lose this. Do you buy tools of trade? Sorry these are out. Do you wear protective clothing or a uniform? Sorry purchase or laundry costs for these are out. Do you want your tax refund early, say the end of July. Sorry this can no longer happen. Do you have income protection insurance? This must cost more than $500.00. Another loss!

With the pre-filling report provided by the tax office, the ATO is at the mercy of the employer, who must, by law, forward copies of your group certificates to the ATO by 14^th August each year. The banks etc. will provide details of interest paid to you. Now if your employer does not notify the ATO  of your income details until 14^th August, then there is no way you can use the ATO system before that date.

Oh, and by the way, if the tax office makes a mistake and you use their system which does not include some income, then it is your fault. Penalties may apply to you for understating your income, so be careful.

What is the best solution? Utilise the services of experts, such as the staff at Coulcher’s Personal Accounting & Taxation Services in the heart of Camden.

The tax Office has gone to print in order to assist taxpayers in identifying what is or is not Work Clothing. This is an attempt to guide taxpayers and to take the guess work out of claiming legitimate expenses in tax returns.

Work Uniforms can either be compulsory or non compulsory. If the uniform is compulsory then you may be able to claim for a single item of distinctive clothing such as a jumper, if it is compulsory for you to wear it at work. You cannot claim expenses incurred for non compulsory work uniforms, unless your employer has registered the design with Ausindustry. Check with your employer who should be able to confirm this information for corporate wear at www.ausindustry.gov.au. Shoes, sock and stockings can never form part of a non compulsory work uniform, and neither can a single item such as a jumper.

Generally, you cannot claim a deduction for the cost of purchasing or cleaning a plain uniform or conventional clothing worn at work, even if your employer tells you to wear them, as this is deemed a private expense.

According to the ATO, if you receive an allowance from your employer for clothing, uniforms, laundry or dry cleaning you cannot automatically claim a deduction. Clothing expenses you can claim are related to compulsory uniforms comprising a set of clothing that, when worn, identifies you as an employee of a specific organisation having a strictly enforced policy that makes it compulsory for you to wear the uniform whilst at work.

You may be able to claim a deduction for shoes, socks and stockings where they are an essential part of this distinctive compulsory uniform, the characteristic of which are stated in your employer’s uniform policy.

You may also claim for a single item of distinctive clothing, such as a jumper, where it is compulsory for you to wear it at work. Generally clothing is distinctive where it has the employer’s logo permanently attached and the clothing is not available to the general public.

If you wear a non compulsory uniform you cannot claim for stockings, short socks or shoes as these items cannot be registered as part of a non compulsory uniform. Your employer can tell you if your uniform or wardrobe is registered. If your employer requires you to wear a distinctive uniform or wardrobe, but does not enforce the wearing of the uniform, the design of the uniform must be registered before you can claim a deduction.

You can claim a deduction for the cost of occupation specific clothing, eg checked pants worn by chefs. The clothing would be specific to your occupation and is not everyday in nature. It is unlikely that a building worker would have occupation specific clothing.

More next week on protective clothing.