The nature of their work means that tradies often incur expenses and buy equipment that others – such as office workers – don’t have to. Because of this, tradies are able to legitimately claim many of these expenses as part of their tax return. However, it’s important to know what you can and can’t claim. Read more to learn all about tax for tradies.
When you’re a busy tradie who works long hours and is under constant pressure to meet deadlines, it doesn’t leave you with much time to think about taxes. However, with a bit of forethought, planning and record keeping, you could recoup hundreds – if not thousands – of dollars each year in claimable expenses.
The Australian Taxation Office (ATO) explains that what you can and can’t claim depends on whether you’re an employee, or a small business (sole trader, partnership, company or trust).
If you’re an employee tradie
You can claim a deduction for expenses incurred as an employee tradie if you spent the money yourself, were not reimbursed for it by your boss, it was directly related to earning your income and you have a record to prove it.
If your expense was for both work and private purposes, you can only claim a deduction for the work-related portion.
If you’re a small business
You can claim a deduction for expenses as a small business if the money was legitimately spent on your business. That is, it was not a private expense. If it’s for a mix of business and private use, you can only claim the portion related to your business. And you must have a record to prove it.
Here are some common tips on tax deductions for tradies, broken down into these two categories so it’s easy to see what you’re entitled to.
What you can claim
1. Protective clothing
Employee tradies can claim a deduction for protective clothing your employer requires you to wear (for example, hi-vis vests and steel-capped boots) and protective equipment such as safety glasses, sunscreen, sunhats and sunglasses where you’re required to work outdoors.
Small businesses can generally claim a deduction for protective clothing (for example, hi-vis vests and steel-capped boots) and costs for safety glasses, sunglasses, sunhats and sunscreen when your business activities require outdoor work.
2. Work tools
Employee tradies can claim a deduction for tools or equipment required for your job. If you also use the tools or equipment for private purposes, you can’t claim a deduction for the private use. If the tools or equipment are supplied by your employer or another person, you can’t claim a deduction.
Small businesses can claim a deduction for most costs incurred in running your business. This includes assets, which you can immediately write-off if they cost less than the relevant instant asset threshold, for example, drills, electric sanders, electric saws, grinders, leaf blowers, lawn mowers, nail guns, ladders, tool boxes, work lights, high-pressure water cleaners, concrete mixers, computers, laptops and tablets.
You may also be able to claim additional items as operating expenses, for example, drop sheets, masking tape, gaffer tape, oil, and replacement belts for machines.
3. Transporting bulky tools for work
Employee tradies may be able to claim the cost of trips between home and work. One case is if you carry bulky tools or equipment for work (for example, an extension ladder), as long as your employer requires you to transport the equipment for work, the equipment is essential to earning your income, there’s no secure area to store the equipment at the work location, the equipment is bulky and difficult to transport.
Small businesses will be able to claim motor vehicle expenses to the extent to which the vehicle is used in carrying on your business.
4. Other common tax deductions
- Laundry or cleaning of work-related clothes (this generally means they carry a logo)
- Work-related tablet, computer and mobile phone expenses
- Home office expenses
- Training courses, licenses and certifications related to your role
- Car expenses including parking, tolls, running expenses, fuel, and distance driven
- Travel and accommodation expenses when working away from home
- Union fees
- The costs of managing your tax return
This is an important part of claiming deductions, as the ATO needs to know your claims are legitimate.
For employee tradies, if your work-related deductions are more than $200, your records must be able to show what you spent the money on, who the supplier was and the date of the purchase. Bank or credit card statements usually don’t contain this information. After you’ve lodged your tax return for the year, you must keep your records for a minimum of five years.
Small businesses also need to keep records that substantiate their business income and expenses.
Your records must explain all transactions, be in writing (electronic or paper) and must also be kept for five years. You may also need to keep records for GST, fuel tax credits and records relating to your employees and contractors.
No fake claims
The ATO is good at spotting fake or inflated tax deductions and they’re getting better at it. They have access to powerful new tools to follow up on taxpayers. They can even check your private details, including bank account transactions.
It’s important to claim legitimate deductions only; things you paid for which are directly related to your work. According to etax, if you are caught claiming items you didn’t pay for, that your company paid for, or that you can’t prove with a receipt, the result can be painful. The ATO will demand pay-back and they might investigate your tax returns from previous years as well.
Getting your taxes in order is one of the ways to grow and protect your wealth. This is where expert advice can more than pay for itself. It not only maximises your tax deductions but also makes sure you don’t fall foul of the ATO.
How LiveWell can help
If you’re serious about your financial future, including getting a handle on your tax, talk to us. Our free service provides you with great tools to cut through the numbers and get to the heart of your financial situation. We help lift the hood, so you can see how things are tracking, including how you’re positioned with your tax.
A great place to start is with our free 10-point financial health check. Then, get in touch to set up an appointment to talk about minimising your tax position, maximising your legitimate deductions, and keeping your returns up-to-date.