Tax Deductions You’re Entitled To as a Trades and Services Business Owner

What you can claim

According to the ATO, you can claim the following as work related expenses — on the condition that you haven’t already been reimbursed, the expense is directly related to earning income, and you have proof of purchase.

Tradie tax deductions include:

• Award transport payments (fares allowance)
• Car expenses
• Child care
• Clothing and uniform expenses (including footwear)
• Driver's licence
• Fines and penalties
• First aid courses
• Glasses, contact lenses and anti-glare glasses
• Home office expenses
• Insurance of tools and equipment
• Laundry and maintenance
• Licences, permits and cards
• Meal and snack expenses
• Newspapers and other new services, magazines and professional publications
• Overtime meal expenses
• Parking fees and tolls
• Phone, data and internet expenses
• Protective items
• Repairs to tools and equipment
• Self-education and study expenses
• Seminars, conferences and training courses
• Sunglasses, sunhats and sunscreen
• Tools and equipment
• Travel expenses
• Union and professional association fees

To understand the specifics of each deduction in more detail, visit the ATO website. 

What you can’t claim

Put simply, anything purchased for personal use cannot be claimed. This includes travel expenses between home and worksites, and private use of company cars. It’s also important to understand the definition of your vehicle when it comes to claiming deductions. If it’s a one-tonne or more ute or panel van, or a vehicle designed to carry at least nine passengers, you can claim the portion of expenses that you use for work.

Similarly, you can’t claim plain work clothing and associated cleaning expenses, or tools and equipment purchased for private projects. A general rule of thumb to remember is that if it isn’t used for work, it can’t be claimed as a deduction.

Recent changes to tax depreciation incentives

The rules regarding depreciating assets have recently changed. It pays to familiarise yourself with the amendments, and ensure you’re taking advantage of what’s on offer. 

There are three tax depreciation incentives available to eligible businesses, and it’s highly likely your business could benefit from them. 

1. Temporary full expensing
2. Increased instant asset write-off
3. Backing business investment 

Keep reading to learn more about each of these new measures. 

1. Temporary full expensing 

For a limited time, you’re able to score an immediate tax deduction for the business portion of the cost of any capital assets you’ve purchased — regardless of how much they cost. The only requirement is that your business has a turnover of less than $5 billion.

If you’ve got your eye on new assets to build and grow your trades business and reduce your taxable profits at the same time, now is the time to take advantage of this temporary tax break. You could consider upgrading your:

• delivery vehicles (noting that limits apply to passenger vehicles)
• store fittings and fixtures
• business computers
• security systems
• EFTPOS terminal and point-of-sale system 

Temporary full expensing can be applied to purchases made until 30 June 2023 yet, from a tax-planning perspective, it makes sense to make your purchases before the end of the financial year. 

2. Increased instant asset write-off

The instant asset write-off is a pre-existing tax depreciation incentive that has changed significantly over time. It’s important to check the eligibility criteria and thresholds that apply to your business depending on when the asset was purchased, first used or installed and ready for use. 

The simplest way to think about it is if the asset is held and first used (or installed, ready for use) between 7:30pm on 6 October 2020 and 30 June 2023, you should rely on the temporary full expensing measures. For eligible purchases made by 31 December 2020, and first used or installed and ready to use by 30 June 2021, look at the instant asset write-off. 

The threshold was recently increased from $30,000 to $150,000, so it pays to go back through your receipts. 

Some examples of assets that could be written off include:

• a car or ute
• drills
• electric sanders
• electric saws
• grinders
• leaf blowers
• lawn mowers
• nail guns
• ladders
• toolboxes
• work lights
• high-pressure water cleaners
• concrete mixers
• shelving and storage
• computers, laptops and tablets

3. Backing business investment 

When you’re completing your paperwork for the 2019–20 and 2020–21 financial years, make sure to check whether you can deduct the cost of new depreciating assets at an accelerated rate under the backing business investment – accelerated depreciation rules.

Temporary deductions to give businesses a boost

No doubt, employee retention is high on your list of priorities. Hiring and training new employees is a significant investment — both of time, and money. One of the best ways to retain employees is to provide opportunities for growth. Thanks to the new Skills and Training Boost, announced in the 2022/23 Federal Budget, it’s now more affordable than ever to do so. 

For every $100 you spend on eligible training courses, you can claim a $120 tax deduction. There’s no limit to how much you can spend on training courses, but there are some rules to consider. The course must be run by an external provider registered in Australia, for example. In-house and on-the-job training is not eligible. 

A similar scheme has recently been put in place to incentivise business’ uptake of digital technology. The government's Small Business Technology Investment Boost enables you to claim an additional 20 per cent deduction for the cost of expenses and depreciating assets up to a maximum of $100,000 per annum. An example of this would be to upgrade your EFTPOS terminal to a fleet of mobile EFTPOS machines — such as those offered by Zeller — that your staff can take on the road, and accept payment on the go. This will enable your business to get paid faster, and reduce the administrative load of issuing and chasing invoices. 

Additional tax measures to consider

Lower company tax rate

All companies are subject to a federal tax rate of 30% on their taxable income, unless they fall into the category ‘small or medium business’ companies. If a company, together with its ‘connected entities’, turns over less than $50 million, a reduced tax rate of 25% applies for the 2021/22 income year. 

There are a few additional eligibility requirements to be aware of, which ensure that specifically defined passive income makes up no more than 80% of assessable income. 

Increased small business income tax offset

The small business income tax offset can reduce the tax a business paid by up to $1,000 every financial year. Businesses are only eligible if they’re a small business or sole trader, or have a share of net small business income from a partnership or trust that is a small business entity. 

Compared to 8% in the 2016-17 financial year, the offset increased to 13% in the 2020-21 period, and has risen again to 16% in 2021-22 where it will remain. 

The net small business income is the sum of the assessable income from carrying on a business, minus any applicable deductions. Use the ATO’s small business income tax offset calculator to work out the exact  amount to enter on your tax return. 

Preparing to lodge

With all of these changes, it’s important to note that tax agents are getting better and better at spotting fraudulent and inflated claims, so it’s vital you only ever claim legitimate work-related expenses, such as the upfront cost of your Zeller Terminal, which you can use to collect on-site, real-time payments. You can’t, however, claim Zeller Account fees or Zeller Mastercard domestic purchase fees – because there are none.

Now that you’re across all the tax deductions available to you as a trades and services provider, you can maximise your hard-earned business dollars every financial year. Sign up to our Business Blog to cash in on valuable insights all year round.

To fully prepare your business for the end of the financial year, schedule time to speak with your accountant or financial advisor. Please note this article is for educational purposes only and does not constitute advice.