Work-related expenses for tradies

Intro:
Welcome to CPA Australia's With Interest podcast, bringing you this week's need-to-know information for businesses and accounting professionals.

Elinor Kasapidis:
Welcome to CPA Australia's With Interest podcast, bringing you this week's need-to -know information for business and accounting professionals. Hello, I'm Elinor Kasapidis, senior manager tax policy at CPA Australia. It's Monday the 13th of June, and we continue our Tax Time chats with assistant commissioner, Tim Loh from the ATO's individuals and intermediaries area who is the official face and voice of Tax Time. Welcome back, Tim.

Tim Loh:
Thanks a lot. Thanks for having me.

Elinor Kasapidis:
Now, last week, we talked about work-related expenses generally with lots of tips about client conversations and record keeping obligations, and this week we're going to take a closer look at work-related expenses and tradies. Now, tradies regularly fork dollars out of their own pocket to invest in equipment or make sure they're well protected on the job. This means they often have a stack of expenses, but they can't always be claimed for tax purposes. How should employees in the trades think about deductions, Tim?

Tim Loh:
Yeah, look, El, all employees, whether you're a tradie or not, no matter what occupation you have, must meet the three golden rules before claiming work-related deduction. The money must have been spent themselves and was reimbursed by the employer. The expenses must directly relate to earning their income, and they must have a record to prove it, and usually a receipt is the best form of record. If the expense was for both private and work-related purposes, your client can only claim a deduction for the work-related component. Now, to be clear a bacon and egg roll or a sausage roll with sauce is considered to be a private expense, not a work-related expense.

Tim Loh:
When it comes to in terms of tools and equipment, if it's used work-related purposes and costs $300 or less and it isn't a part of a set that costs more than $300, your client can claim a deduction for the full amount. Now, if it does cost more than $300, the client will need to claim the cost over the useful life of that particular asset. So, that is using decline in value. Now, remember that if your client bought the item part through the year, they could only claim decline in value for the period of the income year that they owned it. So, if you bought it on the 30th of June this year, the deduction's going to be pretty small.

Tim Loh:
Your client can claim a deduction for the cost of protective items if they wear them to protect themselves from the real and likely risk of injury or illness in their work environment or while performing their work duties. So, I think for example the steel-capped boots, that would be a deduction that they could claim. Now to be considered protective, the equipment must provide a sufficient degree of protection against the risks of illness or injury your client is exposed to in carrying out their work duties. So, protective items on top of the steel-capped boots are things like your safety glasses, helmets, and breathing masks. Now in terms of some of the specific items that are available for deduction, those things are like the protective clothing and footwear, as I mentioned before, the steel-capped boots again are one example, but also protective rubber boots, for example, that concreters could claim whilst they're on job site.

Tim Loh:
Things that you can't claim are conventional clothing that your clients wear at work which aren't regarded as protective clothing because they lack that protective quality designed for the risks of their particular work. So, this includes jeans, drill shirts, shorts, trousers, socks, and just your standard closed shoes. Now things like sunglasses, sun hats, and sunscreen, you can claim deduction for the work related use of sunglasses, sun hats, and sunscreen lotions if they work in the sun for extended periods and they use these items to protect themselves from the real likely risk of illness or injury while at work. Now you can't claim deduction if their employer pays for or reimburses them for the cost of the course. Again, that's an example of the three golden rules not being satisfied.

Elinor Kasapidis:
That's a whole list of things, and I'm thinking about friend of mine who's a tradie and might go to Bunnings, picks up a couple of tools, maybe a $400 piece of machinery, and then buys some egg and bacon rolls on the weekday with his mates, and I guess the real challenge, like you're saying, when you think through all of those different terms and conditions, I just want to go to work, right, and I just want to use my tools. So, it's a real challenge to think through the different kinds of purchases and whether they're private, whether it's got to be depreciated over time, and so it is a really challenging area. You've already sort of talked about some of the examples of rubber boots when things can be actually claimed. We've also heard about doggy daycare and radios bought for work sites. Are there any other unusual claims or things that you hear from taxpayers?

Tim Loh:
Yeah, look, El, we do see a few claims that way off the mark, and we also get some where we see tradies getting it wrong and maybe because they don't realise they are getting it wrong, and I'll start with the ones that are kind of way off the mark. One tradie tried to claim expenses relating to their photography hobby. That's clearly not related to their job as a tradie, and that can't be claimed as a tax deduction. We also saw a building, a construction supervisor claim for an oven. Again, that's just something that's just not related to them earning income. Now to ones where they maybe hadn't realised they had it wrong, a boilermaker tried to claim $2,000 for water, and we also saw a construction worker try to claim chiropractic and gym fees so that he could keep fit to do his job. In that that circumstances, again, they consider to be private expenses and you can't claim them as deductions.

Elinor Kasapidis:
Yeah, that's really, I think where the judgement of a tax agent can be helpful, and of course, Tim, you do put out occupation guides for tradies as well. So, that often points them in the right direction, and like you say, there's a whole spectrum. I love the idea, perhaps the supervisor was also moonlighting as a chef on the work site. I'd love to hear the backstory on that one. But we talked just before, I was just saying how recordkeeping, you've almost got to put each expense into a bucket for tax time. And so, do you have any suggestions around recordkeeping? Because at the end of the day, it's actually the taxpayer who needs to keep the records. You can't put everything on the tax agent and say, "Well, you figure it all out." So, do you have any tips or tricks or things they can do that will help both them and their tax agent and the ATO to get tax time right?

Tim Loh:
Yeah. Good question, El. Look, while the glovebox might be a handy place to store receipts when you're picking up your supplies as a tradie, the receipts can fade over time, plus there's good chance you might lose them as well in that glovebox. But we do have an alternative option to help tradies get their records right on the go, and the best piece of advice I can give is for tracking expenses is for tradies to use the My Deductions tool on the ATO app, and it's really easy. All you need to do is simply take a photo of the receipt in the app, record the details of the expense, and that tax time, they can just email that information to a registered tax agent. So, it makes the tradie's job easy. It makes the tax agent's job easy, and it makes the ATO's job easy, and it also makes sure that get the deductions you're entitled to, nothing more, nothing less.

Tim Loh:
We often find that when audited, people don't have the records to substantiate their claims, and it's really important that your clients know that the records that they need to keep need to be in the form of generally speaking a receipt. As I said before, the best option in my opinion is to use the My Deductions tool in the ATO app. Now, one thing to remember is that the recordkeeping requirement will obviously will vary depending on the deduction type and the calculation method used. The best suggestion or advice I could give is to check out the ATO website, ato.gov.au/keepingrecords for a snapshot of all the recordkeeping requirements, but the most important thing to remember is no record equals no deduction.

Elinor Kasapidis:
So, no record equals no deduction, 1st of July, all of our tradie listeners, but like you said, Tim, just everybody more generally, if you're working from home more often these days, download the app. There are also other apps out there, but the ATO one is designed to fit with various systems, and recording things digitally, Tim, you sort of said as well, often when you come to ask the question, "Where's your receipt?" they don't necessarily have it. They might have had it, but they don't have it anymore. So, again, would the My Deductions app just have that available and that could be shown to the ATO if they had any questions?

Tim Loh:
Yeah, absolutely. So, that's just a really easy way to send that information to your registered tax agent because once they've got that, they've got effectively got the evidence that's required to support the deduction, and it's also a good idea to make... From our perspective, mainly from a tax payers perspective, if you've got the right habits from 1 July of each financial year, you can claim all the deductions that you're entitled to. It's hard finding the old shoebox of receipts from 1 July last year, and for one reason, the receipts could be faded, but two, if you don't have the receipts from early in the financial year which is a long time when you start thinking about doing your tax return, you might miss out on some deductions that you're actually entitled to.

Elinor Kasapidis:
That's exactly right, and I love the idea of setting up good habits throughout the year. The vast majority of people will have a phone. Even tradies working site to site, you've always got a phone. You can snap a copy of the receipt, upload it, and then it's almost set and forget because you can go to your tax agent and they can help you work through the rest. That's so helpful because like you say, recordkeeping seems to be where most people fall over. It's not that the ATO doesn't necessarily believe their story. It's just if you don't have records to prove it, like you say, there's no deduction.

Tim Loh:
Right.

Elinor Kasapidis:
So, in that context from the ATO's point of view for tradies, we talked a little bit last week about general questions to ask about clients and their employment arrangements and how they work, is there anything more specific to tradies that you could suggest?

Tim Loh:
Yeah, look, there's a few things that we want, we think it would be good for tax agents to cover in their conversations with clients. I think it's really important to have in-depth conversations with your clients about their particular circumstances and whether prior deductions have changed. Mistakes that we see, the recordkeeping, I sound like a broker record, but taxpayers just don't have the records or the incorrect records to support the deduction. So, it's important that they've got that. Nexus is another important thing, making sure the work-related deduction is directly related to clients earning income capacity in order for them to claim deduction.

Tim Loh:
Car expenses are something you know, that we see people look to try and claim as a tradie. Nearly 3 million people claimed work-related car expenses in 2021, and one of the most common mistakes was people using the cents per kilometre method to make their claim, and then double-dipping while claiming expenses separately, such as fuel, car insurance, and registration. Now your client can claim the cost of using a car they own when they drive directly between separate jobs on the same day and to from an alternative workplace for the same employer on the same day. They generally can't claim the cost of normal trips between home and work, even if you live a long way from your usual workplace or have to work outside normal business hours.

Tim Loh:
Now in limited circumstances, tradies can claim the cost of trips between home and work where they have shifting places of employment. So, that is when you don't have a fixed place of work, and you have to continually travel from one work site to another throughout your workday or when the tradie has to carry bulky tools or equipment for work, and all of the following conditions apply, one, the tools or equipment were essential to perform the employment duties and they don't carry them merely as a matter of choice, the tools or equipment are bulky, meaning that because of the size and weight, they're awkward to transport. It can only be transported conveniently by the use of a motor vehicle. So, if you're just carrying a power drill, that's not going to cut it as a bulky tool. And finally, there's no secure storage for the items at the workplace.

Tim Loh:
Now if your clients claim car expenses, you can use a log book method, or the cents per kilometre method to calculate the deduction. Again, you need really good records to make sure you can use either of those methods. And finally, in terms of reimbursement, some taxpayers don't realise if they are reimbursed for the work-related expense they incurred, you can't claim a deduction. You can't claim that expense as a deduction. That's considered to be double-dipping because your employee's claiming deduction, and you are trying to claim deduction over the same expense.

Tim Loh:
Just a final reminder is as I mentioned before, the ATO app's a great tool to use to claim or keep track of all your expenses through the My Deductions tool, and it's really easy and simple to use. All you need to do is take a photo of the receipt in the app, and record the details of the expense, and at tax time, you can send that information off to your registered tax agent.

Elinor Kasapidis:
And that's where all the fun begins because all of those things. I was thinking through just nexus, that's where a tax agent can actually help to establish nexus, and then you were talking about the conditions to be able to claim trips between home and a workplace, and they're the sorts of conversations and checklists that need to happen just to make sure that those claims are right, and certainly as well as part of that conversation, educating the client for the coming year as well. So, there's lots in there. Thank you so much, Tim. For me, the conversation has highlighted both the similarities between all employees and their work-related deductions as well as the distinctions for tradies, given the kinds of arrangements that they have and the sort of tools that they tend to carry.

Elinor Kasapidis:
So, that's all on work-related expenses. We're moving onto investments next week, focusing on rentals, and everybody's favourite, crypto assets. If you've got a question about anything we've discussed today, or have a suggestion for a topic you'd like us to explore, you can email us at [email protected]. Thank you for joining us today. If you've enjoyed what you've heard, please tune in again next week and tell your friends. From all of us here at CPA Australia, thanks for listening.

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