Claiming tax deductions for the cost of tools purchased for work-related activities is a great way to boost your refund amount. Claiming tools on tax can be a bit of a murky area, so it’s good to have access to some professional advice if required when you’re sorting through what you can and can’t claim.
So, here’s the complete rundown on making your tool purchases count at tax time.
Tools Used for Both Business and Private Activities
The biggest confusion arises out of claiming for tools that are used for both business and private uses. For example, if you purchase a mower for your landscaping business, but you also use it to mow the lawns at home, you should apportion some of the cost to private use and the rest to your business expense based on a reasonable percentage, given that your private use will likely be relatively small. If the private usage is incidental and rare then apportioning the expense would not be required.
If, however, you have multiple mowers then the apportionment only need apply to one while the rest would represent business expense.
The best way to do this is to keep a diary and note the hours you may use the equipment at home and compare that to your 40 hours per week you may use them at work. That way, you can use the diary to support your work claim amount. For instance, 90% work versus 10% private use.
Having this diary will also be handy if you’re audited, and the ATO asks for evidence of how you worked out your claim.
Tools Costing Over $300 (Employee’s)
For any tool under $300, you can claim the full cost on this year’s tax return. For any tool over $300, you need to claim the cost of the tool progressively over the course of its lifespan. This type of claim is known as depreciation, and it is in place to ensure that the amount you claim is relative to the actual value of the tool.
Tools Costing Over $300 (Self-Employed Sole Traders and Businesses)
The accelerated depreciation rules apply to sole traders and businesses where the annual income is below $10 million. In these cases any equipment costing less than $20,000 can be written off in total in the year it was purchased. This is a great incentive for businesses to refresh their equipment before 30 June each year.
What Tools Can I Claim?
You can claim for any tool or piece of equipment that you purchase for work-related activity. This could include power tools, computers, printers, PPE, sunglasses, office equipment and any other piece of equipment that serves a purpose in your income-earning activities.
What About Repairs and Insurance Costs?
You can claim for the cost of repairing and insuring your tools. You can also claim the cost of any interest incurred for money borrowed to pay for tools, as well as the cost of updating your tools.
What Can’t I Claim?
You can’t claim for tools and equipment that are not required or used for income-earning activities for where your employer already provides the required equipment. For example, you may have a computer at home but your employer provides you with a laptop so you can work from anywhere. Claiming you use the home computer vs your laptop would not make sense to the ATO.
You can land yourself in serious trouble for making false or misleading claims, so be careful when you’re figuring out your portions.
Have Questions? Need support and Advice?
Don’t worry, that’s what OTA are here for. We know how confusing tax returns can be and we don’t want anyone to miss out on deductions that they’re entitled to, so we created this service easy to use, convenient, affordable tax return preparation and lodgement service.
You’ll have an experienced professional tax agent to check over your return before it’s sent off to the ATO. Our premium service includes a consultancy call with a tax agent before we lodge the return to answer any questions and ensure you have claimed all your eligible deductions.
The best part about our service is that our software is incredibly easy to use, ATO approved and secure – you can complete your tax return in just 15 minutes, and you won’t even have to leave the house. You can also expect to see your refund in 10 to 14 days.
Our affordable, fixed-fees are fully tax deductible.
So, if you want to pump up your tax return in 2017, get in touch with us. We know everything there is to know about claiming tools on tax, and everything else you need to know to maximise your 2017 tax refund.