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Self-education is an excellent method of making sure you keep up to date with advancements and techniques about your industry along with the added benefit of making you appear amazing to the potential employers.
To inspire employers and employees equally to embark on educational courses, there are a variety of self-education income tax deductions available, including programs undertaken at colleges and universities (regardless of whether resulting in a formal qualification or not), participation at work-related training seminars or conferences, self-paced studying and study trips (abroad or within Australia).
The costs for self-education may be tax deductible provided there exists a direct and provable connection between education and your income earning activity.
Usually you will have to fulfil any of the subsequent tests to be eligible for an income tax deduction:
Tax deductions for self-education expenditures are usually not permitted if the course of study is intended to:
Non Tax-Deductible expenses:
In some instances, courses may have both tax deductible and non-deductible components (such as. a plumber who operates their own business who undertakes a business administration program where by completing the program will allow the plumber also to operate as a qualified business administrator).
In this scenario, the deductibility of your costs is determined by the intent when the course was undertaken. If you're able to demonstrate that the course is incidental and related to your current income earning activities, the expense is tax deductible. Development of other opportunities does not matter, provided that it was not the reason that you undertook the course. Conversely, if the course was undertaken with the particular objective of changing the taxpayer's income generating activity, the tax deduction will not be permitted.
When the expenditures would otherwise be tax deductible in the legislation, a deductibility limit is applicable (section 82A ITAA36, if you want to look it up). Only expenses in excess of $250 could be claimed.
Below are some tools from the ATO to assist you to determine your self-education expense claims:
An area accountants and tax agents come across where people make the wrong decision as employees is with regards to claiming work-related travel expenditures.
The lack of definite guidelines can tend to make claiming travel expenditures hard as frequently the deductibility of these expenses could be determined by the type of occupation, the time period spent away from your home and whether or not an allowance is provided to pay for these expenses. The necessary invoices and paperwork needs to be acquired and retained to make a tax claim.
Furthermore, the prerequisites about the use of the ATO's acceptable travel amounts without the need to maintain written proof could be confusing.
Why must I focus on travel expenditure deductions?
The deductibility of overnight work-related travel costs, such as transportation, lodging and food, is on the ATO radar.
Our expertise shows that the ATO continues to be notably active in focusing on and, in many cases, amending previous year assessments for excess claims for those people whose occupations need them to regularly travel and stay away from home. Tax Agents have gotten enquiries with regards to the income tax matters of clients who work as academics such as teachers, fly-in, fly-out (FIFO) employees and medical professionals.
When are travel expenses permitted as a tax deduction?
Being an employee, you are eligible for claim a tax deduction for travel expenses, that may include lodging, food and transport to the extent that the expense is borne in earning employment income and it will not be of a capital nature, personal expense or associated with earning exempt income.
Generally speaking, travel expenses incurred are tax deductible for a person if you can adequately establish that the expense is incurred while carrying out employment tasks and aren't personal in nature.
Accommodation paid by a worker on short business trips are generally tax deductible, however, the income tax treatment is significantly less distinct where by an employee is needed to work away from home for a prolonged period.
Whether or not the person is regarded as “living away from home” (LAFH) or “travelling” (as part of their employment) is actually a crucial factor in deciding the tax deduction of travel expenses.
What is the big difference among “LAFH” and “travelling”?
When an employee is “travelling” on work trip on behalf of the employer, travelling costs are incidental for the job performed and will not be a personal or domestic expenditure. This sort of expense is usually tax deductible.
In some instances, employees could also get a travel allowance from the workplace to pay for their LAFH or travelling expenses (typical for FIFO workers and certain itinerant employees).
The ATO provides the following comparisons to assist you to establish the difference:
LAFHA (Living Away from Home Allowance)
This is given where by a worker is taking up short-term residence away from their home in order to perform the job at a new, but short-term, place of work. There's a change of employment place pertaining to paying off the allowance. Where an employee is living away from home, it is usual for the worker to be accompanied by their partner and kids.
They are paid for a longer period (more than 21 days).
This is given due to the fact a worker is travelling while carrying out their employment.
The ATO emphasises that these particular indicators are pointers only, no single indicator alone should be counted on, to ascertain the character of the allowance. For instance, a travel allowance could be given to a professional traveller, or travelling performer almost regularly, while another might get a LAFHA for just 30 days.
There might be scenarios when a worker is living away from their main residence for a short period that it might be tricky to decide if the worker is living away from home or travelling. The ATO states that for a practical basic guideline, where by the time period away doesn't surpass 21 days, the allowance is going to be treated as being a travel allowance instead of a LAFHA.
How are travel allowances subject to taxes in comparison to LAFH allowances?
An allowance that fulfils the definition of a travel allowance will be assessed as assessable income and tax deductions for travelling expenditures incurred can be claimed against that allowance.
In compare, a LAFH allowance, to the degree it qualifies as a “LAFHA fringe benefit” for FBT purposes, would not be treated assessable income. Travelling costs incurred would certainly not be tax deductible if you're an employee and you're living away from home.
What documents should I maintain to be able to claim a tax deduction? What is the “substantiation exception”?
All tax deductible travelling costs need to be substantiated with proper evidence and travelling documents (for example bills and travel journals) or else claims are going to be rejected.
A “substantiation exception” is available which enables you to claim travel expenditures without having to maintain written documents if you have received a ‘bona fide’ travel allowance.
If entitled, you are able to claim tax deductions for travel costs up to the ATO recommended acceptable amounts for that relevant year without the need to maintain written proof.
We do nonetheless suggest that you retain your bills regardless to substantiate your travel claims. It will give you peace of mind in case of an ATO audit. This is really a confusing part of the law, please contact us if you require assistance.
For any further information, please contact our expert accountants Cranbourne and tax agents Cranbourne on 1300 300 106.
Claiming mobile phone, internet and home phone expenses
The ATO has released a fact sheet detailing how people can claim work-related telephone and internet usage. Essentially, it requires individuals maintaining a 4-week journal to enable them to apportion the charges between work and personal use. However, employees are not mentally attuned to this type of routine of maintaining such a journal. Having said that, clients will nonetheless count on their tax agent to claim the maximum amount possible.
Since this unfortunate document has witnessed the light of day, tax agents will have to advise all those clients who made an identical claim in their 2015 income tax return, that they'll have to maintain a 4-week journal - on a yearly basis!
The fun will commence the coming year when the clients come without a journal, as well as expectations of a large tax refund!
If you make use of your personal phone(s) or the internet for your work use, you might be able to claim a tax deduction if you paid for these expenses and hold records to back up your claims. If you are using your phone(s) or the internet both for work and personal use, you need to determine the proportion that fairly pertains to work usage.
Substantiating your claims
You must maintain records for a 4-week time period in every financial year to claim a tax deduction in excess of $50. These records can include journal records, including digital records, and bills. Proof that the employer needs you to work from home or use your phone for work calls will also assist you to illustrate that you're eligible for a tax deduction.
When can't you claim a tax deduction for the phone?
Workplace supplied phone
When your workplace gives you a mobile phone for work use or will pay for the usage (calls, texts, data) then you certainly are not entitled to claim a tax deduction. Also, when you pay for the usage and are also later reimbursed by the workplace, you are unable to claim a tax deduction.
How you can apportion work usage of your phone
You need to establish your work usage by using a reasonable basis.
If the work usage is minor and you're not claiming a tax deduction greater than $50, you can claim as per the following, without the need to analyse your costs:
$.25 for landline calls,
$.75 for mobile calls, and,
$.10 for SMS messages.
Usage itemised on the bills
For those who have a phone plan where you get an itemised monthly bill, you must figure out your proportion of work usage over the 4-week representative time period which could then apply to the entire financial year.
You will need to determine the proportion by using a reasonable basis. This might include:
- the number of work message or calls made as a proportion of total message or calls
- the time spent on work related calls as a proportion of your overall phone calls
- the quantity of data downloaded for work reasons as a proportion of your total downloading
Example - calls itemised on the bills
Ann has a $80 a month mobile phone plan, that gives her $500 for calls and 1.5GB of internet data. She gets a monthly bill which itemises all her calls and provides her with internet data usage.
Over the 4-week period, Ann determines that 20% of her phone calls are work-related. She worked 11 months during the financial year. Ann can claim a tax deduction of $176 on the income tax return (20% x $80 x 11 months).
Usage not itemised on the bills
In case you have a phone plan that you do not get an itemised monthly bill, you can establish work use by maintaining a record of your entire phone calls spanning the 4-week representative time period and determine your claim by using a reasonable basis.
Example - non-itemised bill
John has a pre-paid phone plan that costs $50 each month. John doesn't get a bill so he maintains a record of his phone calls for a 4-week period. In this 4-week period, John makes 25 work phone calls and 75 personal calls. John worked for 11 months throughout the financial year, with 1 month of leave.
John works out his work use as 25% (25 work related calls /100 total phone calls). He can then claim a tax deduction of $138 on the income tax return (25% x $50 x 11 months).
Bundled Phone and Internet Plans
Phone and internet services are frequently bundled in 1 plan. When you're claiming tax deductions for work-related usage of more than one service, you must apportion your expenses according to work usage for every service.
If other people in the family also use the services, you will need to take into consideration their usage in your calculations.
For those who have a bundled plan, you must determine work usage for every service over a 4-week period during the financial year. This will help you to establish your pattern of work usage which can then apply to the entire year.
A reasonable basis to determine work-related usage could include:
- the quantity of data downloaded for work as a portion of the total data downloaded by all people in your family
- any extra expenses incurred on account of your work-related usage - for instance, your work-related usage leads to you going above your monthly limit.
- the number of work-related phone calls made as a proportion of total phone calls
- the length of time spent on work phone calls as a proportion of your total phone calls
- any extra expenses incurred on account of your work-related usage
Example 1 - apportioning bundled up services
Sue has a $100 monthly landline and internet service bundle. The monthly price of Sue's telephone service in the package deal is $40, and her the internet is $60. By adding her cell phone plan of $90 a month, Sue gets a $10 monthly discount. Her total expenses for all 3 services are $180 monthly.
Sue worked for 11 months in the financial year, with 1 month of leave.
According to her itemised accounts, Sue ascertains the work related usage of her cell phone at 20%. Sue also makes use of her internet for work purposes and according to her use she establishes that 10% of the internet usage is for work. Sue doesn't use the landline for any work calls.
Since the 3 services are all in a package deal, Sue can compute her work usage as follows:
Step 1 - calculate the value of every element
Cell phone - $90 each month less the $10 discount = $80 a month
Internet - $60 a month as listed on the bill
Landline - no need to calculate the cost as she doesn't use it for work calls. Sue is not entitled to claim landline cost as she didn't use it for work purpose.
Step 2 - apportion the work related usage
Internet use - 10% work usage x $60 per month = $6 a month x 11 months
Total claim $66
Mobile usage - 20% work use x $80 = $16 a month x 11 months
Total claim $176
Sue is entitled to claim a tax deduction of $242 for the whole financial year ($66 internet + $176 mobile )
Example 2 - apportioning bundled services
Dee pays $90 a month for landline and home internet. There is not a clear breakdown for the price of each service. By maintaining a record of the phone calls Dee makes over 4 weeks, he calculates that 25% of his phone calls are work purpose. Dee also maintains a record for 4 weeks of the internet data usage and determines that 30% is for work.
Dee worked for 11 months in the financial year, with 1-month leave.
Without a clear breakdown of the costs, it is fair to allocate 50% of the total price to every service.
Step 1 - work out the value of each service
Internet - $45 a month
Home phone - $45 a month
Step 2 - apportion the work related usage
Landline - 25% work use x $45 a month x 11 months = $124
Internet - 30% work use x $45 a month x 11 months = $149
Dee is entitled to claim a deduction of $273 ($124 + $149) for the respective financial year.
In case you bought a mobile phone, tablet or any other electronic device and utilise it for work, you can claim a tax deduction for a percentage of its cost.
Contact our expert Cranbourne tax agents on 1300 300 106 to find out if you are entitled to claim a tax dedution for the phone and internet expenses.
Small businesses and individuals were placed on notice this past year once the Australian Taxation Office (ATO) cautioned it will be beginning a whole new system of random audits in 2015-16 financial year to claw back approximately $3 billion in lost revenue.
In addition to focusing on deliberate income tax evaders, the ATO does have its sight focused on individuals claiming tax deductions that happen to be extremely high or don't conform with the permitted tax deductions that associate with their particular industry or area of occupation.
Every year, in excess of 2 million business income tax returns and 12 million individual tax returns are lodged with the ATO, either directly or by using a registered tax agent. The majority of these tax returns are swiftly assessed and processed if they raise no warning signs. Even so, an average of about 350,000 tax returns are recognized by the ATO as comprising errors or omissions.
However, that number is about to get even larger. By using superior software programs and statistics, the ATO will have the ability to easily cross-check all businesses and individual income tax returns against bank-account information along with other transaction sources that report a web-based paper trail of business performed and products purchased and sold. The ATO will be in the position to do this data matching in real-time and something that doesn’t match with the ATO’s rigid parameters would raise red flags.
These advancements imply that each and every income tax return will be under scrutiny and it is getting much easier for ATO to spot claims which are considerably greater than those claimed by individuals with similar professions and employment income.
Staying within the income tax boundaries
Apart from straight-up income tax evaders, where people attempt to escape the ATO’s notice via fake and misleading claims, a large portion of the people approached by the ATO after lodging their income tax returns are found to have erroneously claimed for tax deductions that they aren't eligible for.
Generally, businesses and individuals can claim an income tax deduction on any expenditure directly linked to income earning activity. The ATO outlines a variety of allowable tax deductions on its website which, based on unique scenarios, range from the examples below:
The ATO website also provides industry and occupation specific deductions, such as health and fitness workers, hospitality and entertainment industry workers, professionals and various others. Click here to access the ATO website for your industry specific deductions.
From the income tax standpoint, every industry is prone to have its very own distinctive characteristics and associated deductions. Do your research to ensure that you do not erroneously claim tax deductions that you are not entitled to.
We use specialised software to ensure that you claim the right deductions, contact our expert tax agents Cranbourne on 1300 300 106 to find out what you can claim in your industry.
It is common for professionals who offer services to trade under a different entity for the business, whether it's a trust, partnership or an incorporated company.
The charm obviously being the lower income tax rate these entities offer, as opposed to the top marginal income tax rate of 47% that an individual would pay.
Operating a business through this type of structure also can result in a broader array of tax deductions being available. To prevent taxpayers avoiding their full share of income tax, the tax legislation, however, has some regulations in place. Contact our expert Cranbourne Tax Agents for more information.
The PSI Guidelines
The measure comes under the banner of "personal services income" (PSI), which describes PSI as payments for "a reward for a person's individual efforts or skills". This excludes the sales of merchandise, like a retail store or manufacturer, or using physical assets such as a truck or van to derive that income.
As PSI is revenue generated primarily from personal expertise or efforts, you can derive PSI in numerous sectors, trades or occupations. Typical cases include building & construction personnel (such as trades), financial professionals, IT professionals, engineers and medical professionals.
The PSI guidelines operate as an integrity measure in order to avoid people employing an entity to direct their earnings to a lower tax setting (for instance a company) and also to gain access to a greater suite of general tax deductions.
If a business structure is assessed to be contrived (an evaluation that is based on a number of checks), then the revenue your business generates is going to be treated as earned by you as a contractor individually, and subject to taxes at the individual rate instead of taxed to the entity.
The income tax issues that accompany PSI are sometimes misinterpreted and may lure the unwary in case the ATO's auditors come knocking.
The ATO's PSI Tool
To make issues simpler, and also to assist with your income tax planning for the year ahead, contact us on 1300 300 106 about accessing the ATO's recently designed online "decision tool" to help you determine whether have earned PSI, and when the PSI principles will affect that income.
In order to answer the questions in the PSI determination tool you will need:
• specifics of contracts with the business's clients in the financial year
• invoices for work done in the financial year
• details of payments to your staff or sub-contractors.
What this PSI tool provides
After answering a number of questions, the tool provides you with a report that provides you:
• advise on whether your revenue is PSI and if the PSI principles affect you
• a review of the answers you've supplied
• information about the implications on your tax obligation as per the result provided by the tool.
The ATO states that generally you'll be able to rely on the results provided by the tool, however, based on your scenario; you can make application for a "personal services business (PSB) determination".
You can print or save the report, for your tax records. Our skilled Tax Agents & Accountants in Cranbourne can help you examine the outcome to assist you strategise your income tax affairs.
For further information about BookSmart Accountants Cranbourne or tax agent services, please contact us on 1300 300 106 or via our contact page.