Tax tips

Defining deductions

Tools, travel and protective clothing can be quite expensive for builders and tradies. But which expenses are deductible? If you’re an employee – builder or other tradie – it pays to learn what you can claim at tax time.

The three golden rules

To work out if you can claim a deduction for work-related expenses (WRE) you need to be aware of the three golden rules:

• you must have spent the money yourself and you weren’t reimbursed
• it must be directly related to earning your income
• you must have a record to prove it (you can use the ATO app’s myDeductions tool to keep track of your expenses).

Also – you need to remember to only claim the work-related portion of your expenses.

Whether you can claim a deduction for WRE depends on your individual work situation. In this article we highlight some deductions housing industry workers may be able to claim, by taking a look at an average work day of two tradies – Craig the carpenter and Paul the plumber.

Paul the plumber

Paul is a keen surfer who has chosen to live in a coastal town, which is 100kms from where he performs most of his work. Every work day he travels the 100kms to the building site. Paul does not have to transport his tools, because they are kept overnight in a secure work shed. In the afternoon, Paul drives to a second construction site and works there. Paul then drives the 100kms home.

Paul is required to wear hi-vis shirts and steel-capped boots when onsite at work. The rest of his clothing is conventional (e.g. jeans) and not company-specific.

Craig the carpenter

Craig has long-term work in a retirement village where his employer, a construction company, is building several units. Craig drives his sedan to the site every day. His employer requires Craig to provide his own tools which he stores in the boot of his car. His toolbox is large, weighs 30kg, and there is no safe place on the construction site where he can leave it.

Craig also uses his tools for private purposes, including on the weekend to build the deck he has always dreamed about. This accounts for 25 per cent of the tools’ use.

Craig is a senior manager so about once a month he must also travel interstate to Sydney to attend management meetings. Craig stays overnight and keeps receipts for all his expenses, such as meals and accommodation.

Craig is required to wear hi-vis shirts and steel-capped boots when onsite at work. The rest of his clothing is conventional (e.g. jeans) and not company-specific.

So, what deductions are Paul and Craig entitled to? Let’s take a look at car, clothing, tools and equipment, and travel expenses.

Paul the plumber - surfing
Paul has chosen to live away from work, so his travel from the ocean to the city is not tax deductible
Rugby stadium
If Craig goes to the rugby on one of his overnight Sydney trips he cannot claim this as a deduction because it is not related to his income-earning activities

Car expenses

You can claim a deduction for the cost of travel while performing your duties. This includes travel between different work locations.

This is good news for Paul; he will be able to claim his travel between the two construction sites. But Paul needs to keep in mind that normal trips between home and work are private in nature and can’t be claimed. This applies even though he lives a long way from his usual workplace. While Paul can claim his site-to-site trips, he has chosen to live away from work, so his travel from the ocean to the city is not tax deductible.

Craig’s home to work travel is deductible. This is because he is required by his employer to carry bulky tools or equipment for work, and he meets the following requirements:

• the equipment is essential to earning his income
• there is no secure area to store the equipment at the work location
• the equipment is bulky – at least 20kg – and difficult to transport.

To claim these car expenses employees must:

• keep a logbook of their work trips, or
• be able to show their claim is reasonable if they use the cents per kilometre method (for claims up to 5,000 km only).

For more information go to www.ato.gov.au/carexpenses

Your vehicle is not considered to be a car if it is a vehicle with a carrying capacity of:

• one tonne or more, such as a ute or panel van
• nine passengers or more, such as a minivan.

In these circumstances e.g. if you use a ute, you can only claim your actual expenses such as fuel, oil, insurance, repairs and servicing, car loan interest and registration.

You must keep all receipts for your actual expenses, and cannot use the cents/kilometre method for your claim.

Truck

Your vehicle is not considered to be a car by the ATO if it has a carrying capacity of one tonne or more

Tools and equipment expenses

You can claim for tools and work equipment that you need to buy for the job. But because Craig’s tools use is 25 per cent for private purposes, he can’t claim a deduction for that use. He can only deduct 75 per cent of the cost.

If the tools cost $300 or less – you can claim an immediate deduction for the whole cost.

If the tools cost more than $300, you can claim a deduction for the cost over a number of years.

For more information go to www.ato.gov.au/toolsandequipment

Clothing expenses

Paul and Craig’s employers require them to wear protective clothing (e.g. hi-vis vests and steel-capped boots) so they can claim a deduction for these expenses. But as their other clothing is not distinctive to their jobs (e.g. jeans) they can’t claim a deduction for this everyday clothing, even if their employer tells them to wear it or they only wear it for work.

Travel expenses

Since Craig is required to travel away from home overnight for work, he can claim a deduction for accommodation and meal expenses. Craig can only claim these expenses because he pays for the accommodation and meals himself and is not reimbursed for the costs he incurred. If Craig receives a travel allowance from his employer he must declare this as income in his tax return.

On some of the overnight Sydney trips, Craig goes to the rugby league with his colleagues to watch his beloved Sydney Roosters. Because this is not related to Craig’s income-earning activities, he cannot claim this as a deduction. He will have to be satisfied with seeing his team in action.

Other common deductions

There are other expenses Craig and Paul may be able to claim, including protective equipment such as sunscreen, sunhats and sunglasses, union fees or phone expenses for work.

The information was provided by the Australian Tax Office. For more details visit www.ato.gov.au/otherdeductions

Related Articles

Industry inspiration

Experience the world of building industry developments at these upcoming international events.

Improved with love

Wabnitz Homes is celebrating 30 years of service to the industry and cannot stress enough the importance family plays in the success of a business.

Finances in the cloud

Reckon One is providing tradies with cloud accounting software to help minimise time dedicated to business finance.

Learning new tricks

Following his teenage dream, Simon Russell proves it’s never too late for a career change.

Join more than 120,000 like-minded subscribers