Posts Tagged ‘Work Related Expenses’

In our last column we spoke about some workers being eligible to claim a deduction for motor vehicle usage. This week we will concentrate on the different methods you can use. Hopefully this will give you an idea of which method to use for the best tax deduction.

Cents per kilometre – a good method where the actual business use is low. This method allows you to claim up to 5,000 kms at a set rate. The rate varies depending on the engine size of your car. You do not need to keep receipts or log books however you must be able to justify your claim.* Although the maximum you can claim under this method is 5,000 kilometers per year, you can travel more than this on business but the claim is limited to 5,000 kms.

12% of original cost – as the title suggests the deduction is 12% of the original cost, provided the business use of your motor vehicle exceeds 5000 kilometres, (pro rated if used less than a year). You do not need written evidence for this method* however the value of the car is subject to luxury car limits (2009 luxury car limit is $57,180).

*It’s a good idea to keep a diary of allowable work kilometres. You may need to justify your claim five years down the track, and remembering how you came to the kilometres claimed may not be easy.

One-third of actual expenses – the deduction is based on 1/3 of actual expenses. The car has must have traveled more than 5000 kilometres in the year for allowable work activities (pro rated for part year use). You will need written evidence for expenses and odometer records for the start and the end of the period you owned or leased the car in the income year. **

Log Book Method – the claim is based on a business use percentage, a good method for say the traveling salesman, you will need to keep a log book for all travel and keep all receipts associated with running your vehicle,**  however fuel and oil can be calculated using odometer records. You need to keep a log book for each car for 13 weeks every five years (provided the business percentage does not vary) this is used to work out an allowable deduction based on a percentage of expenses. You also need odometer readings for the start and the end of the period you owned or leased the car in the income year.

**When calculating the running cost of a car, include such items as; lease payments, interest on loans; registration; insurance, repairs and maintenance. Odometer readings can be used to calculate fuel & oil expenses.

The above methods cannot be used for claiming a deduction for utility trucks or panel vans with a carrying capacity of one tonne or more, vehicles with a carrying capacity of nine or more passengers, motorcycles and somebody else’s car. Refer to the ATO website, or to us, for more information.

The use of a motor vehicle for work is often over looked by employees due to the uncertainty of deductibility and the confusion surrounding the ways a claim can be calculated. This article should help you determine if you are entitled to a claim. As this is only a brief outline we encourage you to talk further with your tax agent about your individual circumstances.

One of the main points is the car should be owned by the taxpayer and be registered in the name of the taxpayer. This is the main rule, but there are  exceptions, so please ask when completing your tax return.

The ATO recognises the need for some employees to use their car in the course of their work and allows a deduction for this provided:

• It is not travel to and from work which is considered private in nature even if done more than once a day for example if you are on call and get called in to work for a second or even third time.
• The car is not provided to you by your employer,
• Tasks performed were more than minor in nature. Minor tasks include tasks such as collecting the mail on the way to work.
• Your home was a place of business and you traveled directly to a place of employment

A point to remember is there is no deduction allowable just because there was no public transport available or you worked outside normal working hours.

A deduction is allowable in the following circumstances

• You carried bulky/heavy work equipment to and from work and you could not leave the equipment at work.
• You have a shifting place of employment, for example a building worker who travels regularly to more than one site in a day before returning home
• Your home is the base for your employment, you started work at home and then went to a place of employment to continue that work
• You travel directly from one place of employment to a second place of employment or to a place of study where that study is related to your job.

There are four methods you can use when claiming a deduction for motor vehicle use and they will be discussed in our next column.

Whichever method you choose, you can change the method each year. If you own two or more vehicles, and use them all for business, you can claim a deduction using one or more of these methods for each vehicle.

However if you cannot wait you can read more on these on the ATO website or if you have a question and cannot find the answer throw us an email and we will get back to you. Email info@coulcher.com.au

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.

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.

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.

Taxpayers can claim deductions for work related expenses (WRE) incurred while performing their job. You can incur a work related expense when you receive a bill or invoice for an expense that you are liable for and must pay or you receive a good or service and pay for it. The fact that you have not yet paid for the goods does not stop you claiming a tax deduction in the year the debt was incurred.

The basic rules associated with work related expenses are: (a) you must have incurred the expense in the current tax year; (b) you cannot claim an expense that your employer (or any other person) has or will reimburse for you; (c) you must have incurred the expense in the course of earning your assessable income and (d) it must not be private, domestic or capital in nature. For example, travel to & from work each day is private expenditure.

You must have written evidence to prove your claims if your total claims exceed $300, the records you keep must prove the total amount, not just the amount over $300.

The $300 limit does not apply to claims for car, meal allowance, award transport payments allowance and travel allowance expenses. There are special written evidence rules for these claims which are explained on the ATO Website. If the amount you are claiming is less than $300.00 you need to be able to show how you arrived at that figure but you do not need written evidence ie receipts, bank statements, etc. The ATO advise that it is best if you retain all receipts so that in the event of you claiming more than the $300.00 you can justify the full claim.

Many taxpayers believe that they are entitled to a tax deduction of $300.00 whether or not they have actually spent anything.  This is totally wrong. The only tax deduction available is one whereby the taxpayer has actually incurred an expense or paid for one. Aligned with this is the fact that the expense must be related to the earning if income.

Generally, tax deductions for work related expenses are similar irrespective of the occupation undertaken, whether you are a building worker, teacher, truck driver, nurse, shop assistant or defence force member. No matter what the occupation, you may be able to claim for work related travel, protective clothing or uniforms, reference material, tools of trade, self education expenses and overtime meal allowances. I say ‘you may be able to’ because although you are required to spend money in order to work, the Tax Office does not see that spending as being an integral part of earning your income.

In the coming weeks we will look at specific deductions.