A guide to Tax Time for Tradespeople

We understand tax time can be a stressful time for time poor tradespeople and business owners and we want to help.   

To get you started, we’ve had Trinity One Accountants & Business Advisors create this blog with 3 great topics to help boost this year’s tax refund or reduce your tax bill and of course keep you within the law, whilst also helping you think how to best plan for next year. 

Before we begin, we recommend consulting a professional tax consultant or accountant to sort out your tax needs (see our partner contact details below). 

Key dates to be aware of: 

30th June. Last day of the 2020/2021 Financial year. 

1st July. Start of the 2021/2022 Financial year  

14th July. Single Touch Payroll finalisation declaration is due 

21st July. Lodge and pay your June 2021 Business Activity Statement (BAS) if you pay monthly 

28th July. Lodge and pay Q4 (April-June) Business Activity Statement (BAS) if you pay quarterly. 

28th July. Make sure all Q4 superannuation guarantee contributions are received by employees’ funds to avoid extra charges. 

28th August. Lodge Taxable Payments Report if you’ve in the building and construction industry. 

21st October. Deadline to lodge your tax returns if you’re doing it through an agent. 

31st October. Deadline to lodge your individual/sole trader/partnership tax return, payment reports and Annual Investment Income report. 

28th February. Deadline to lodge your company tax return. These dates vary, so check the ATO website before getting started.Page Break 

Topic 1: Instant asset write off for eligible businesses: 

Eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used or installed ready for use up to certain ATO Thresholds 

An instant asset write-off can be used as a business expense for the following: 

• multiple assets if the cost of each individual asset is less than the relevant threshold 
• new and second-hand assets. 

According to the ATO, the following are examples of assets that you may be able to claim as an immediate deduction include: 

For a small business, this deduction applies to most assets, whether the asset you bought is new or second-hand. You can claim the deduction in the year the asset was first used or installed ready for use. 

Car limit 

A car limit applies to the cost of passenger vehicles (except a motorcycle or similar vehicle) designed to carry a load less than one tonne and fewer than 9 passengers. 

The car limit is: 

• $59,136 for the 2020–21 income year 
• $60,733 for the 2021–22 income year. 

The one tonne capacity is the maximum load your vehicle can carry, also known as the payload capacity. 

The instant asset write-off is limited to the business portion of the car limit for the relevant income tax year. For example, the car limit is $59,136 for the 2020–21 income tax year. If you use your vehicle for 75% business use, the total you can claim under the instant asset write-off is 75% of $59,136, which equals $44,352. 

Topic 2: Deductions for Tradespeople 

To claim a deduction for work-related expenses: 

• you must have spent the money and that you weren't reimbursed by your employer. 
• the expense must directly relate to earning your income. 
• you must have a record to prove it (usually a receipt). 

Examples of deductions that may be claimed by some common occupations are shown below 

Tradespersons 

Includes plumbers, carpenters, painters, welders etc. 

• Tools – replace, repair, sharpening 
• Protective work wear 
• Insurance – public liability, tools, income protection 
• Motor vehicle 
• Telephone/mobile 
• Apprenticeship courses 

Construction Workers 

• Protective clothing – boots, high-vis vests, sun protective vests 
• Tools and equipment 
• Repair of tools 
• Sun glass, sunscreen, sun hats 
• Safety equipment – harnesses, goggles and breathing masks 
• Renewal of licences and permits – white car, working at heights 

A deduction can also be claimed for the cost of washing (cleaning), drying and ironing uniforms, corporate wardrobes, protective clothing, occupation specific clothing etc. (eligible work clothes) as laundry expenses. 

Vehicle-related tax deductions 

Motor vehicle expenses incurred while deriving assessable income or in carrying on a business are allowable deductions.  

Such expenses include  

• petrol, 
• oil,  
• repairs,  
• servicing,  
• tyres,  
• lease charges,  
• interest on a car loan,  
• car washing.  
• Registration 
• insurance 

The expenses may only be claimed to the extent they are incurred in earning assessable income (that is, they may need to be apportioned) and must be substantiated.  

For vehicles which are owned or leased by the taxpayer and meet the definition of a ‘car’, special substantiation rules apply. It is important to determine the type of vehicle to ensure the substantiation requirements are met. 

For tax purposes, a ‘car’ includes all motor cars, station wagons, panel vans, utilities or similar vehicles and other road vehicles designed to carry less than 1 tonne and fewer than 9 passengers. 

There are two different methods available to make a claim for car expenses for the 2021 year: 

• Cents per kilometre (set rate) method 
• Logbook method 

Your tax consultant or accountant can assist you to finalise either method of claiming vehicle related tax deductions.Page Break 

Topic 3: How to get a head start to make tax time easier next year 

Track as you go: 

We know it can be overwhelming when it comes to tax time. We’re often left scrambling trying to find receipts, invoices, or evidence of uses.  

Although it can be annoying now, tracking everything you need to track as you go can save you a bunch of time at the end of the financial year.   

There are a lot of tools you can use to help you do this. We recommend downloading the myDeductions app to help you do this!  

Other important considerations include: 

• Using an appropriate business structure to help reduce your tax bill for your business.  

• Using online accounting software that integrates to other software that help reduce your administrate burden and streamline your business process.  

• Developing cash flow methods to help manage your current and future cash flow needs.  

• Developing a budget to ensure that you are on track throughout the financial year to meet or exceed your financial goals. 

Final quick tip! 

• All invoices made through FlatRateNOW are uploaded to Xero through the manual process 

• If you aren't using Xero, you can still export all of your invoices from FlatRateNOW and send them to your accountant for tax time! 

Now that we’ve set you on the right path for this financial year’s tax return, you may want to start thinking about planning for the next financial year, to set up your trade business for growth and profitability.

Download our free E-book “Growth and Profitability, the ultimate guide to future proof your trade business!. 

Author: Kevin Wenaden - Director, Trinity One Accountants & Business Advisors. We partner with small and medium businesses to guide them to become and maintain profitable and sustainable businesses. 

Disclaimer: FlatRateNOW is not a financial service profession company. The above tips have been sourced from professionals, consultants with the right certification to provide you advice or are factually available by the Australian Government and Australian Taxation Office. If you require advice, please consult a professional like your Accountant. They’ll help you with specific advice, and ensure you’re taking advantage of any relief packages or deduction strategies that may cut down your tax bill. They’ll also help you avoid common tax mistakes.