GUIDE: What can I claim at tax time when I’m self-employed?

Hands up if ’Can I claim this on my tax?’ is a question you ask yourself more than the average person? If so, welcome to self-employment – we wrote this guide just for you.

For self-employed folks, tax-time should be a time of celebration. A chance to look back at the financial year that was and take stock of all you’ve achieved. We’re savvy enough to know, however,  that it  can also bring with it a ton of spreadsheets, calls to your accountant, and a frantic rummaging around for receipts. 

The question ‘What can I claim?’ might have to be the one most asked by self-employed folks so let’s kick things off by talking about claiming on your superannuation.


Super – Your voluntary contributions

Lots of people are unaware that you can use super contributions to reduce your taxable income. And because most of us feel like we pay too much tax anyway, it’s a great way to get some money back. 

The government knows that locking money away for a really long time probably isn’t most people’s preference. So they incentivise us all to do it by giving us fiercely low tax rates inside super.

In fact, putting away super is a bit like having your very own tax haven in the Cayman Islands. (Except it’s completely legal.)

Let’s have a look at how the tax rate inside super compares...

So, money made from earnings that's put inside super is taxed at 15%, versus outside of super where it's taxed at your marginal tax rate (which can be as high as 45% – yikes!).

However, when you’re self-employed and making personal contributions, it’s really important to note that if you want the earnings you contribute to super to be taxed at 15% instead of your marginal tax rate, you have to claim your contribution as a tax deduction.

As an example, let's say this is Alex.

She's a 34 year old freelance copywriter who sees herself retiring at 67.

Alex earns a solid average of
$85,000 a year and she also gets taxed solidly on that amount, too.

After years of procrastination, she finally decides to do something about her retirement and commits to saving
$125 a week.

Very quickly, Alex notices how much less tax she pays if she starts saving inside super and claiming her contributions as a tax deduction.

She also sees how it boosts her retirement stash in the future, compared to the same investment outside of super:

Click here to read the disclaimer
*For more information on how super is taxed, visit the government’s MoneySmart website
here.

So by saving for retirement using super – and claiming contributions as a tax deduction – Alex slashes her taxes and pockets an additional $81k in retirement savings.

And because Alex will be over
60 years old when she retires, she can access her superannuation savings tax-free.

Thank you Mr Taxman!

Take advantage of the system.

Even though it can help you reduce the amount of tax you're paying, the tedious process can put people off. Which is why we've automated that process.

When you set up your GigSuper account, just tell us that you want to claim all your personal contributions as a tax deduction, and we'll automatically send you the receipt you need to claim your tax deduction come tax time.
SEE HOW IT WORKS

The home office

In 2020, working from home became standard practice for the majority of Australians but for a lot of self-employed folks it was already the norm. And you can claim it, too.

The general rules are that you need to do at least part of your work from home and it must be in a dedicated room used exclusively as an office. Alternatively, you’ll need to sit down and work out exactly how much time you use the space exclusively for your work.

What classes as ‘home office’? 

  • office equipment costing less than $300
  • depreciation on equipment above $300
  • furniture
  • software subscriptions (Microsoft word, Adobe, Photoshop etc)
  • postage
  • printing and stationery
  • phone calls and internet use (keep a record of these, bills are good)
  • electricity and gas expenses (a proportion)*
  • home insurance (a proportion)*
  • water (a proportion)*
  • cleaning costs (a proportion)*

*The proportion is based on the percentage of the house your home office takes up. If you spend most of your time working from home it’s worth seeing a tax accountant. They’ll help make sure you’re claiming everything you’re entitled to.  

Charity donations

With five out of six Australians reported to give to charities every year, it’s worth knowing that you can claim those donations in your tax return. Any donations over $2, made to a verified not-for-profit organisation, are tax deductible.

This includes: 

  • registered charities
  • registered political parties or candidates (Maximum of $1,500)
  • tax-exempt religious organisations
  • any token items you’ve bought such as lapel pins, wristbands and stickers - as long as the purchase price was over $2
  • bucket donations: These are collections conducted by an approved organisation for natural disaster victims. Note: you can claim a tax deduction for gifts up to $10 without a receipt.

To be tax deductible, the organisation must be recognised by the ATO as a deductible gift recipient (DGR). 

To make everything easier at tax time keep your receipts, including all donation receipts (electronic or physical). 

GOOD TO KNOW: You can only claim the donations you made where there’s no chance of getting something in return. So, things like entry into a raffle, or tickets to a charity dinner, aren’t tax deductible.

Upskilling 

When you’re self-employed the ability to upskill is essential. It helps get you up-to-speed with areas of the business that might not come naturally. 

Could be an education program or a professional development workshop but if it relates to your work, or it’s likely to increase your income, then there’s a chance you can claim it. 

Examples of upskilling and education you can claim include:

  • course or tuition fees
  • books, journals and subscriptions
  • student amenity or union fees
  • stationery and printing
  • internet and training software
  • study-related travel (but not from home to your course)

Business Travel

Travelling for work is often so much more than just the cost of a flight or an overnight stay, it’s all the little things along the way. And those little things can rack up quite the tally. 

Staying on top of your expenses is 100% your responsibility when you’re self-employed so here’s a quick rundown of things you can claim back – when related to work.

  • car expenses for work-related tasks (except when going to and coming from workplace)
  • parking costs
  • taxi fares
  • flights
  • train fares
  • car hire, tolls and petrol
  • accommodation expenses 
  • meals (may be subject to thresholds)
  • the cost of laundry services 
  • traveling to a work-related course

Motor vehicle – Fuel costs and maintenance

As a  business owner, you can claim a tax deduction for expenses related to your car and certain other vehicles as long as it’s used to operate your business.

If you’re a driver working for Uber, Deliveroo etc (hello, gig worker 👋  ) then you can claim the use of your vehicle at tax time. Same goes if you drive your own delivery van for work. 

Vehicle expenses you can claim include:

  • fuel and oil
  • repairs and servicing
  • interest on a motor vehicle loan
  • lease payments
  • insurance cover premiums
  • registration
  • depreciation (decline in value)

If you’re going to claim it’s important to correctly identify and justify the percentage you’re claiming as business use. You can use a logbook or diary to record private versus business travel.  

Coworking Spaces

Coworking spaces are becoming the office of choice for both self-employed people and sole proprietors. Whether it’s for the free coffee/beer/kombucha, the cool location, or the community vibe there’s no doubt that coworking is going to play a large role in how the future of work looks for the self employed. Plus, a large portion of the cost of it is also tax deductible.  

Clothing expenses 

You can claim a deduction for the cost of buying (and cleaning) occupation-specific clothing, protective clothing and unique, distinctive uniforms. 

Protective clothing includes:

  • fire-resistant and sun-protection clothing
  • safety-coloured vests
  • rubber boots for concreters
  • steel-capped boots, gloves, and heavy-duty shirts and trousers
  • overalls, smocks or aprons you wear to avoid damage or soiling your ordinary clothes during your income-earning activities
  • clothing that’s made to cope with more rigorous conditions, where conventional clothing would be inadequate
  • clothing that’s designed to protect you – for example heavy duty shirts and trousers, distinct from ordinary cotton drill trousers, shorts and short sleeve shirts that may be considered as work wear but do not adequately protect the wearer from the risk of injury or illness
  • clothing that has a density of weave which gives a UV rating sufficient to protect you from the sun where your job requires you to work outdoors.

If you decide to dry clean your work clothes, you can claim back a portion of the cost.  


Tools and equipment expenses

For those who don’t work in a home office but work in (or on) other people’s homes (I’m looking at you my tradie friends), you’ve got the ability to claim tools and equipment expenses used primarily for work purposes.

If you need to purchase relevant equipment for your job, like a computer, mobile phone, power tools or machinery, you can also claim depreciation on these purchases if they are over $300.  

You are able to claim depreciation based on the assets effective life (how long the ATO believes your asset will last for), this can be done spaced out over the lifetime of the asset eg a laptop could fully depreciate over three years or be claimed via the instant asset write off. 

Under the instant asset write off, you can claim a deduction straight away for the cost of all tools costing less than $150,000 (as of Nov 2020, please check with a professional tax accountant for current rates as this will revert back to $30,000 come January 1 2021). 

For most self-employed tradies, that means that pretty much all your tools can be written off straight away against your taxable income.

Examples of assets you can claim a deduction for include:

  • drills
  • electric sanders
  • electric saws
  • grinders
  • leaf blowers
  • lawn mowers
  • nail guns
  • ladders
  • tool boxes
  • work lights
  • high-pressure water cleaners
  • concrete mixers
  • shelving and storage
  • computers, laptops and tablets.

Accounting Advice

Being self-employed or a sole trader is hard enough without having to stay on top of your finances, which is why it can be worth getting someone to do it for you. If you do use a tax accountant/tax professional to sort you out at tax time you can claim for the service. You can also declare your travel costs for getting to and from the appointments. 


 Oh, and P.S., keep all your receipts!

We know it’s hard but try and keep a record of all your business expense receipts - digital and physical.

Under tax law, your records must explain all transactions and be:

  • in writing, either on paper or electronically
  • in English, or in a form that we can readily access and convert into English
  • kept for five years (although some records need to be kept longer)

Anything outlined in this article is of general advice, if you do need personal tax advice please seek out a professional accountant.