TAX TIPS FOR TRADIES

This month’s column is designed to assist taxpayers who are engaged in a trade as an employer, contractor or sub-contractor, apprentice or trainee.

Am I an Employee or a Contractor?

A key issue addressed in this month’s column is whether you are employed as an employee or as a contractor/subcontractor who may for tax and superannuation purposes to be a “deemed employee”. The ATO has developed a decision tool that both employers and employees should use to determine if your employment circumstances deem you to be an employee or a contractor. This excellent decision tool may be accessed at ato.gov.au/Calculators-and-tools/Employee-or-contractor

This is an important step for you to undertake if there is any doubt over your employment status. Although you may have been engaged as a “contractor” and referred to as a contractor, you may in fact be a deemed employee for tax and super purposes.

The key criteria utilised by the decision tool includes, amongst others, the following tests:

• Are you engaged to deliver a result or do you work under instruction?
• Are you paid by the hour worked or have you negotiated a contract price to deliver the agreed result or outcome?
• Are you responsible for fixing up any mistakes or errors in your own time and at your own cost?
• Do you supply your own tools and equipment rather than using tools and equipment supplied to you?
• Are you able to engage other workers to assist you in delivering the result?
• Do you advertise your services in the public domain?

If you answer yes to most of the above questions, then most likely you are a contractor and not a deemed employee. The decision tool will give you a clear yes or no answer that can be used as your defence should you become the target of an ATO audit.

Why is this important?

1. If your employment circumstances are such that you are a deemed employee then your employer is legally bound to pay the employer superannuation guarantee of 9.5% of your ordinary time earnings into your designated super fund. If your employer erroneously believes you are a genuine contractor at tax law, you could be missing out on receiving the 9.5% super contributions entitlement from your employer.
   There has been a history of errors made by building and construction industry employers which has consequently triggered increased ATO audit activity.
2. If you are an employee or deemed employee then you are entitled to claim expenses incurred in earning your employment income at items D1 to D5 in your personal tax return which may simplify the task of preparing your tax return.
3. If, on the other hand you are a contractor, you are operating an enterprise in the eyes of the ATO and accordingly you will need an ABN (Australian Business Number) and will be required to register for GST if you earn or expect to earn $75,000 or more income in a year as a contractor. You will also need to register as an employer if you have employees or deemed employees working for you and will need to withhold PAYG income tax from your employee’s wages, meet your responsibilities for the 9.5% employer super guarantee contribution and ensure they are covered for workcover. You will also be responsible for paying income tax on your earnings as a contractor and will invoice your services to your clients/customers rather than receive a salary or wage. If registered for GST you must ensure your invoices are compliant tax invoices. You will also need to complete the business section of your tax return.

Claiming a Deduction for Motor Vehicle Expenses

1. As an employee
   There are now only two methods available for employees to claim a deduction for work related use of a motor vehicle viz; the cents per kilometre method and the log book method. This deduction can be quite significant and it is therefore important to keep the required records that enable you to maximise this deduction.
2. 66c per kilometre method
   Under this method you are not required to keep a log book but will need to be able to justify how you have determined the number of kilometres travelled for work related purposes. Regardless of the type of vehicle be it a car, station wagon, 4WD or tradies utility, once you have arrived at your place of work you can claim travel during the day on work related business at the rate of 66c per km. Claiming travel from home to work and return is less straight forward. If you have a vehicle that enables you to transport heavy tools and equipment to and from work each day because it is neither safe nor practical to leave them at your place of work then you should be able to claim this travel as well. Your claim however is capped at a maximum of 5000kms p.a.
3. log book method
   If you expect to have in excess of 5000kms of claimable travel it is highly desirable that you maintain a complying log book record for a minimum period of 12 weeks that is likely to be representative of your yearly pattern of work related travel. This will enable you to claim the work related percentage of total distance travelled of all motor vehicle expenses including depreciation, financing interest, registration and insurance, servicing, repairs & maintenance and fuel costs. More often than not this method will result in a significantly higher deduction and is therefore the recommended method for use by tradies.

The issues covered above can be complex so use the decision tool and consider consulting a tax agent to ensure compliance and maximising your deductions.

Disclaimer:
The content of this article is not intended to be relied upon as professional advice and should not be used as such. If you have any questions you should consult a registered tax agent.
Brian Spurrell FCPA, CTA, Registered Tax Agent. Personalised Taxation & Accounting Services Pty Ltd 0412 011 946