We regularly deal with a broad range of personal and corporate taxation issues and focus on understanding the individual needs of every client. As Registered Tax Agents with the Australian Taxation Board, DSR Partners’ can offer advice based on recognised qualifications, proven knowledge and experience. Whether you need advice on company tax, personal tax or indirect taxation our team will identify the best solutions for you.
You may be able to claim a deduction for work-related expenses you incur that directly relate to your work or your income producing activities. To claim a deduction for a work-related expense, you must meet the 3 golden rules:
- You must have spent the money yourself (ie not reimbursed).
- The expenses must directly relate to earning your income.
- You must have a record to prove it (usually a receipt).
If the expense was for both work and private purposes, you only claim a deduction for the work-related use. Also depending on the expense, you can claim an immediate deduction or claim the decline in value of a depreciating asset over several years. Please see the link below for types of expenses the ATO may accept
You can claim a deduction for motor vehicle where you use it in performing your work-related duties. But generally, you can’t claim the cost of expenses for travel between your home and your regular place of work (unless you meet certain conditions).
There are two different methods for claiming work related motor vehicle expenses and each have different record keeping requirements.
- Under the cents per kilometre method, you simply multiply the number of business kilometres you travelled by the appropriate rate per kilometre for that income year. You can claim up to a maximum of 5,000 business kilometres for the year.
- Alternatively, you may use the logbook method. You must maintain a logbook that shows your work-related trips for a minimum continuous period of 12 weeks. Your logbook is valid for five years. Under the logbook method your car expense claim is based on the work-related portion of your actual expenses for the car (eg 50% of total car costs). You need keep records for all expenses for the car and the log book.
It is not necessary for you to use the same claim method each year. The choice of method should be made on the basis of which is more favourable to you and which you have the appropriate records for. But if you don’t have a current logbook or have not retained all receipts you will be limited in which method you can choose.
- Fixed rate method:
- This method allows for a fixed deduction at 52c per hour for the time you work at home which covers expenses such as electricity and gas, decline in value of home furniture such as a desk or chair, as well as cleaning your home office. You are able to claim phone, internet, printing and stationery expenses as well as computer equipment in addition to this hourly rate.
- Actual cost method:
- To be able to claim for electricity & ga, as well as cleaning expenses you must have a dedicated office space at home that is used exclusively for working from home. You are then able to claim a % of the expenses incurred based on the total square metre floorplan of your home vs the dedicated workspace. Expenses such as phone, internet and computer equipment are claimed based on receipts and work-related use as a % of the total cost.
- Please note claiming occupancy expenses such as rates, interest and insurance on your home are only allowed in very specific circumstances and may have Capital Gains Tax consequences, please contact us to discuss this further.
- Shortcut method:
- This method allows for a fixed rate deduction at 80c per hour for the time you work at home which is all inclusive – there is no additional claim allowed for your phone, internet, computer equipment and office furniture. You are still able to claim for printing and stationery expenses, however, please note this rate only applies up to 30th June 2022, and is scheduled to reduce to 67c per hour from 1 July 2022.
In most cases you need to keep receipts for deductions you claim in your income tax return for 5 years from the date your Notice of Assessment has been issued upon lodgement of your annual tax return.
In practice, the notice of assessment is only issued once the tax return has been lodged and in some cases this is more than 12 months since you have actually incurred the expense, so as a general rule we advise clients to keep there receipts for a period of 7 years from payment.
These rules however do not apply to the purchase of assets, for example shares, cryptocurrency or investment properties. For these, you must maintain your records for 5 years after you dispose of the asset.
Positive and negative gearing strategies both have benefits and drawbacks, depending on your personal circumstances.
The key benefit of negative gearing is that any net rental loss you incur during the financial year may be offset against other income you earn, such as your salary. This in turn reduces your taxable income and how much tax you have to pay each year. But the difference between the tax refund and the original outlay is coming from your pocket. So the tax benefit is only partially reducing the loss that you personally had to fund.
So why do it? While you’re making a loss, your property’s capital value is (hopefully) growing. Negatively geared investors are banking on their overall loss being offset by their property’s potential capital growth in the future. Keep in mind, there may be tax implications (like capital gains tax) that you’ll need to factor in if or when you sell.
Having a positive cash flow means you’re making a profit from day one. With a higher income, you can start putting money aside for another deposit – and continue to build your portfolio that way. Or you might use the extra cash to pay down the principal on your mortgage. Either way, you’ll be in a better financial position for the future.
So what is the disadvantage of generating a positive cash flow? Because you’re receiving extra income, you’ll have to pay more tax on that income. But remember you are paying only tax because you are in front of the game with your properties earnings.
Ultimately, you’ll need to consider your own personal financial circumstances and investment goals to assess whether a positive or negative gearing strategy is the best option for your needs. Have a talk to one of the staff here at DSR Partners BEFORE you sign any contract. We will ask you questions and explain the implications of the property (prior to purchase), so you are able to make an informed decision.