Working tradies need to be certain about what can or can’t be claimed on their annual tax return. A lot of the time, what you can claim depends on whether you’re an employee tradie or a small business (that is, operating as a sole trader, partnership, company or trust).
For example, the above distinction can make a difference when you are claiming for the costs of buying tools and equipment.
Tradies who are employees
You can claim a deduction for tools or equipment you are required to buy for your job. If you also use the tools or equipment for private purposes, it is generally the rule that you can’t claim a deduction for the private use.
You will need to work out what percentage of the use of the tools is work-related and only claim that amount. (And remember, if the tools or equipment are supplied by your employer or another person, you can’t claim a deduction.)
If a tool or item of work equipment you only used for work:
- costs more than $300 (or if there is a “set” of similar assets that in total cost more than $300), you must claim over a number of years.
- costs $300 or less – you can claim an immediate deduction for the whole expense.
Tradies who run their own show
If you are a small business owner, under the instant asset write-off rules you can immediately write off assets purchased for your business that cost less than the relevant threshold amount.
Your business is eligible for the instant asset write off if it turns over $10 million or less from 1 July 2016 (or $2 million or less in previous years) and the asset was first used or installed ready for use in the income year you are claiming it in.
The threshold mentioned actually comes in three parts, which differ due to the legislation being updated over a relatively short time that unfortunately spans the 2018-19 and 2019-20 income years. You can claim a deduction for each asset (first used or installed ready for use) up to the following thresholds:
- $20,000, before and including 28 January 2019
- $25,000, from 29 January 2019 to 7.30pm (AEDT) on 2 April 2019
- $30,000, from 7.30pm (AEDT) on 2 April 2019 until 30 June 2020.
You may purchase and claim a deduction for multiple assets provided each asset costs less than the relevant threshold. Examples of assets includes:
- electric sanders
- electric saws
- leaf blowers
- lawn mowers
- nail guns
- tool boxes
- work lights
- high-pressure water cleaners
- concrete mixers
- computers, laptops and tablets.
This deduction applies to most assets, whether the asset you bought is new or second-hand. You claim the deduction in the year the asset was first used or installed ready for use.
Assets you bought for the relevant threshold amount or more are deducted over time using a small business pool. Generally you can claim a 15% deduction for assets in the year you buy them and a 30% depreciation deduction in subsequent years.
As with the above situation, what you can claim depends on whether you’re an employee tradie or a small business tradie.
Employee tradies: You can claim a deduction for expenses incurred as an employee tradie if:
- you spent the money yourself and were not reimbursed
- it was directly related to earning your income
- (* see note below)
If your expense was for both work and private purposes, you can only claim a deduction for the work-related portion.
Small businesses: To claim business expenses:
- the money must have been spent for your business (not a private expense)
- if it is for a mix of business and private use, only claim the portion that is related to your business
- * For both employee tradies and small business tradies, it is best to keep records to prove you spent the money.
You may also be able to claim additional items as operating expenses. For example:
- drop sheets
- masking tape
- gaffer tape
- replacement belts for machines.