It’s that time again for contractors… time to lodge your tax return with the Australian Taxation Office (ATO), and hopefully receive a refund.
Tax tips for contractors
Typically, once your tax return is lodged it will take around two weeks for the refund to be processed, though if you don’t complete your application correctly, or there are questionable claims, it will take longer.
To streamline your application, we’ve provided an overview of the claims you may be able to make this year and some advice, drawn direct from the ATO, about claims you should not attempt to make.
Before we start, it’s important to remember that a tax deduction does not mean you get the entire amount of any business related expenditure back when you lodge your tax return – however, every eligible expense is worth claiming because part of the cost will be deducted from your taxable income, meaning the amount of tax you need to pay will be less.
The cost of travelling from home to work cannot generally be claimed as a work related expense unless you are required, by your employer, to transport bulky tools or equipment which can’t be stored at your workplace. However, you can claim work related expenses if you use your car to drive between offices, or your place of work and clients.
If you’re working from home due to the COVID-19, and you occasionally drive into work, you cannot claim the cost of the drive into work as your home is considered to be your private residence not a ‘place of business’.
Eligible car expenses can be claimed in one of two ways – by claiming cents per kilometre or using a logbook. The latter is preferable if you use your car extensively for work as it allows you to claim a percentage of all of your car expenses (fuel, registration, maintenance, interest on loans etc.). The cents per kilometre method allows you to claim a set rate for fuel only.
Work-related travel expenses
Travel expenses include overnight hotel stays, car hire, flights, trains, bus and taxis fares, food when staying overnight, personal protective equipment / necessary business clothing (including laundering and dry cleaning). If your employer provides you with an allowance for these items as part of your PAYG income, you can claim travel and accommodation expenses up to the allowance amount, without needing to keep records. However, you must be able to justify expenses if requested and you will need to provide evidence of any expenses over the allowance amount. Ideally, keep receipts for all work related expenses, as back-up.
If you’re studying in an area that is related to your job, you can claim back some of your study-related expenses.
Gifts and charitable donations
You can claim a deduction on any donations you’ve made to registered charities, for which you have receipts.
Tax agent fees
You can claim expenses that relate to managing your taxes, including accounting or tax agent fees, and any interest charges from the ATO, if applicable.
Other work-related expenses
You can claim a deduction on any items you pay for that are 100% related to your job. These may include: stationery, notebooks, tax books, journals and trade magazines; tools and equipment, computers, laptops and software (if you work from home or purchase/subscribe on behalf of your job); mobile phone, telephone, internet; home office expenses, such as the cost of running a dedicated work space and the declining value of furniture used to work at home. While you do not need to keep receipts for claims of expenses up to $300, you do need to have spent the money and be able to justify the purchases as work related expenses.
Traditionally, employees who work from home have had the option of using the ATO’s ‘shortcut method’ to claim .52cents per hour worked from home or claiming the actual costs of working from home. In response to COVID-19, the Government has introduced an additional shortcut option, which enables employees working from home to claim .80c per hour for the period 1 March to 30 September 2020.
If you choose to use this short-cut option, be sure that you do not ‘double dip’ by claiming for specific items such as laptops or desks.
A Word of Warning
During tax time, it’s common for scammers to impersonate the ATO using phone calls, emails or texts to tell you that you have a refund due or a tax debt to pay.
The ATO offers the following advice to help you detect scammers:
The ATO will never:
- send unsolicited pre-recorded messages to your phone,
- ask you to provide your personal identifying information in order to receive a refund,
- send you an email or text message with a hyperlink directing you to a log on page to access myGov or myTax,
- threaten you with immediate arrest over a debt, or insist you stay on the line until a debt is paid.
If in doubt, do not reply to an email / phone call or text. Instead contact the ATO direct.
At the Ayers Group, our experts are on hand to relieve you of the administrative burden that comes with managing your contract, financial, tax and legal obligations. By accessing our services and by tapping into our network of professional experts, we can free you up to focus on innovation and wealth development. Be sure to contact an expert at the Ayers Group today.
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