Archive for June, 2010

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.