Tax Time

TIPS FOR BUILDING AND CONSTRUCTION WORKERS

For many Australians, navigating the tax system can be quite overwhelming (especially for those engaging in building and construction which is often project-based, contracted work). To help take the stress out of tax returns and to maximise your return, we have some expert advice from Mark Chapman, director of tax communications at H&R Block.

He said: “As we get towards the end of the financial year, it is essential that everyone gets the paperwork ready. The ATO has a strong focus on the building and construction industry and is not happy with the amount people are claiming for work related clothing for example. “The ATO is also focusing on cash jobs that are not claimed, especially with domestic jobs – so declare it and pay the GST. “If you get your paperwork up to date and take professional advice on whether you are entitled to claim for something or not, you stand a good chance of staying out of trouble with the ATO,” he said. Contractor or employee? It’s common in certain trades for people to be taken on as independent contractors rather than employees. Deciding whether a person is a contractor or an employee can be a minefield, both for the individual and for the business taking them on. Getting it wrong can have a big impact, with consequences both for you and the business that has engaged your services. • A contractor (or consultants as they are sometimes called) is a self-employed person engaged for a specific task, at an agreed price, with a specific goal in mind, often over a set period of time. They set their own hours of work and take care of their own tax obligations. Contractors are paid a fee for completing an assignment. They don’t receive a salary or wage and need to pay their own tax from their gross earnings, whilst also making their own superannuation contributions. • By comparison, an employee has tax 22 MBA NSW | Issue Three | June/July 2018

deducted at source from their salary and receives compulsory superannuation payments from their employer. Vehicle and travel expenses The most important thing to remember when it comes to work-related vehicle and travel expenses is that you must keep records, making everything easier come tax time. “You can’t claim tax back unless you have the paperwork to support it… It’s very easy to get to the end of the financial year and to not have kept receipts. Go through all your transactions at the end of the financial year by examining your bank statements and get a copy of the invoice, so you can claim,” Mr Chapman said. If you use your car for work you are entitled to claim the work related travel expenses that relate to the business costs of using your car to do your job. Travelling to and from work on a daily basis cannot be claimed as this is considered as private travel, even if: you do minor tasks on the way to work, such as picking up mail; you travel back to work for a security call out or parent teacher interviews; you work overtime and no public transport is available to use to get you home. Methods you can use to claim car expenses include: • Cents per kilometre: o Your claim is based on a set rate for each business kilometre you travel. Under this method you are eligible to claim up to a maximum of 5,000 kilometres per year, per vehicle. If you travel in excess of 5,000 kilometres this method of claim is not appropriate to you. You will need to use the alternate method of a logbook to claim. o The claim value is calculated by multiplying the total business kilometres travelled (limited to 5,000 per vehicle) by the standard rate of 66 cents per kilometre.

This figure takes into account all the vehicle running expenses (including depreciation). o You do not need written evidence, however you need to be able to demonstrate that you have covered the kilometres claimed.

A diary of work-related journeys (including the kilometres travelled) will suffice. • Logbook: o Your claim is based on the business use percentage of each car expense. This is determined by a log book that must have been kept for a minimum 12 week period, and must be updated every 5 years.

Through your logbook you can claim all expenses that relate to the operation of the car, at your percentage of business use. o The logbook must record all business journeys made in the car over the 12 week period that it records, detailing; » when the log book period begins and ends » the car’s odometer readings at the start and end of the period » the total kilometres travelled » the business percentage for the logbook period o For each journey in the logbook, you must record: » start and finishing times of the journey » odometer readings at the start and end of the journey » kilometres travelled » reasons for the journey » if you make two or more journeys in a row on the same day, you can record them as a single journey. o You will need to keep all receipts throughout the year to justify your claim, such as insurance, servicing and repairs.

Petrol can be estimated using the start and end odometer readings for the year, indicating the total kilometres travelled. o Depreciation is calculated as 25% of the written down value of the car (using the

Diminishing Value method). You can claim the cost of work-related car expenses if they are incurred whilst performing your job as an employee, such as:

• Carrying tools or equipment required to complete your job • Travelling from your home to an alternative workspace (such as a client/supplier’s office), and then back to your own workplace or home at the end of the day • Travelling between two separate workplaces where you are employed • Travelling to conferences, meetings or other events as required by your employer • Delivering or picking up items/packages related to your job, and as required by your employer Deductions for work clothing When it comes to what you wear to work, there are some clothes-related deductions you can claim – the cost of buying and cleaning occupation-specific clothing such as: • protective and unique clothing (i.e. not everyday wear) • clothing that easily identifies your occupation, like checked chef trousers • distinctive uniforms • clothing and footwear that you wear to protect yourself from the risk of illness or injury posed by your job or the environment in which you do your job. To be considered protective, the items must provide a sufficient degree of protection against that risk, and might include: o fire-resistant and sun-protection clothing (including sunglasses) o hi-vis vests o non-slip nurse’s shoes o rubber boots for concreters o steel-capped boots, gloves, overalls, and heavy-duty shirts and trousers o overalls, smocks and aprons you wear to avoid damage or soiling to your ordinary clothes whilst at work. Claiming the cost of work uniforms: • Compulsory work uniforms o A uniform identifies you as an employee of an organisation. The uniform must be compulsory to wear while you’re at work with a strictly enforced policy ensuring its enforcement. If this is the circumstance surrounding your uniform, the cost is deductible. o Where your shoes, socks and stockings are an essential part of a distinctive compulsory uniform, you may be able to claim a deduction. Their colour, style and type must be specified in your employer’s uniform policy as is sometimes the case with air stewardesses and nurses. It might be possible to claim for a single item of distinctive clothing, such as a jumper if it’s compulsory to wear to work. • Non-compulsory work uniforms o In some instances, you can claim for a non-compulsory uniform, given that it’s unique and distinctive to your organisation.

Clothing is considered unique if it’s

been designed and made solely for your employer. Distinctive clothing must have your employer’s logo permanently attached and not be available for public purchase. o You can’t claim the cost of purchasing or cleaning a plain, logo-free uniform, such as generic white shirts or black trousers that wait staff wear. Non-compulsory work uniforms are usually required to have a design registered with AusIndustry in order to be tax deductible. Shoes, socks and stockings aren’t considered part of a noncompulsory work uniform and neither is a single item such as a jumper. It’s possible to claim the costs of washing, drying, ironing and dry-cleaning eligible work clothes. Written evidence for your laundry expenses, such as diary entries and receipts must be kept if both the amount of your claim is greater than $150, and your total claim for work-related expenses exceeds $300. This doesn’t include car, meal allowance, award transport payments and travel allowance expenses. Deductions for courses and training Most of us want to better ourselves at work and a large part of doing that is equipping yourself with the skills you need to advance your career. The good news is that you can often do that, and claim a tax break on the costs you incurred at the same time. Self-education expenses are tax deductible when the course you undertake leads to a formal qualification and has a sufficient connection to your current employment and: • maintains or improves the specific skills or knowledge you require in your current employment, or • results in, or is likely to result in, an increase in your income from your current employment. You can’t claim a deduction for self-education expenses for a course that does not have a sufficient connection to your current employment even though it: • might be generally related to it, or • enables you to get new employment. You can claim the following expenses in relation to your self-education: • accommodation and meals (if you are away from home overnight) • computer consumables (such as paper or ink) • course or tuition fees • decline in value for depreciating assets such as computers or laptops (cost exceeds $300) • purchase of equipment or technical instruments costing $300 or less • equipment repairs • fares (bus/plane/train, etc.) • home office running costs (for any home study) such as heat, light, etc. • interest on any money borrowed to fund the course • internet usage • parking fees • phone calls • postage • stationery • student union fees • student services and amenities fees • textbooks • trade, professional, or academic journals • travel to-and-from the place where the course takes place (only for work-related claims) You can’t claim: • repayments of Higher Education Loan

Program (HELP) loans (although the fees paid by some HELP loans are) • Student Financial Supplement Scheme (SFSS) repayments • home office occupancy expenses (such as mortgage interest or rent) • meals where not sleeping away from home Mobile phone use If you use your own phone for work purposes, you can claim a deduction if you paid for these costs and have records to support your claims. If you use your phone for both work and private use, you will need to work out the percentage that reasonably relates to your work use. You can’t double-dip and claim for phone expenses that have been reimbursed by your employer. To work out your deduction, you need to choose a typical four-week period from some point in the tax year. If you have a phone plan where you receive an itemised bill, you need to determine your percentage of work use over that 4-week period. You can then apply that to the full year. Professional associatons, magazine subscriptions and trade union fees As a part of your profession, you may be a member of an association – the good news is, you can claim your subscriptions. If you’re part of a trade union, your fees are also deductible. Magazines can make a dent in your return, as can subscriptions to mags associated with your line of work. If you’re an investor, financial publications and research services are claimable. Tools and equipment You can claim a deduction for some or all of the cost for tools and equipment if you require it for work purposes. If the work is used for both work and private expenses you need to divide what you can claim. The cost of the asset will affect the type of deduction you can claim: • items that cost $300 or less and don’t form part of a set you can claim an immediate deduction • items that cost over then $300 or form part of a set, you can claim a deduction for their decline in value. You can also claim the cost of repairing and insuring tools and equipment if need be. Issue Three | June/July 2018 | MBA NSW 23

Get an Unbreakable HiLux without breaking the bank

Save thousands with your Gold Fleet Discount

Being a member of the Master Builders Association gets you a Gold Fleet Discount across a huge range of Toyota vehicles,1 like the Unbreakable HiLux SR5.2 Tackle any job, with a powerful 2.8L turbo diesel engine, durable underbody and a whopping 3.5 tonnes braked towing capacity.3 Do it all with advanced safety features at the ready – seven SRS airbags, Traction Control, Hill-start Assist and Trailer Sway Control are just the start. Whatever your business, make your Gold Fleet Discount work for you.

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1. Excluding HiLux Rugged, Rugged X or Rogue models and Special Edition models. 2. SR5 model shown. Accessories sold separately. 3. Towing capacity is subject to regulatory requirements, towbar and vehicle design and towing equipment limitations. Ask your Dealer for Toyota Genuine Towbar capacity and availability details.

Master Builders Association membership details required to redeem Gold Fleet Discounts.

Business savvy

END OF FINANCIAL YEAR CHECKLIST

Another financial year is at an end and once again it’s time to prepare for meetings with accountants, talk to insurance brokers and make sure you’re prepared for the next financial year. A good source of information for small businesses can be found on the Australian Government Business website www.business. gov.au/info/run/finance-and-accounting/ accounting/essential-tasks-at-end-of-financialyear-eofy The checklists include a summary of essential tasks at End of Financial Year (EOFY) such as: • Record keeping and compliance • Find out what tax deductions you can claim • Use a registered tax agent • Keep up to date with tax changes starting next financial year • Be wary of tax refund scams • Review your finances • Review and update your business and marketing plans • Review your business structure • Review your insurances • Backup and secure your files The Master Builders can assist members who are considering a change to their current business model. Simply contact our Legal Department for advice or access a copy of the “Building Business Start-Up Kit”. This kit can help answer many frequently asked questions and offers tips on how to handle some of the most common issues you’ll encounter. If you would like a copy of the “Building Business Start-Up Kit” please contact your local MBA office, call the Member Services Department on 02 8586 3515 or download a copy from our website at www.mbansw.asn.au/ BusinessStartUpKit Another area that we can offer assistance is Insurance. A call to Master Builders Association Insurance Services (MBAIS) can provide you with a free insurance health check on any policies that you have in place, even if they’ve been arranged through another insurance broker. They can also check that your policies provide the coverage you need, giving you peace of mind that your business is adequately insured. MBAIS can also provide advice and quotations for general insurance products and specialty products including Home Warranty, Contract Works & Liability, Professional Indemnity and Workers Compensation. For a complete overview of all member benefits, services and member-only discounts contact your local Master Builders office, call Member Services on 02 8586 3515 or visit www.mbansw.asn.au/MemberBenefits

Time for a Super change

The recent Federal Government Budget contained a number of changes that affect superannuation

For current workers’ changes to default life insurance in superannuation

The government is proposing to abolish default life insurance cover within superannuation for young people under 25 years of age as well as those with low and inactive accounts.

Under the proposals, all super accounts that have not received a contribution for 13 months will be classified as inactive. Accounts with balances of less than $6,000 will be classed as a low balance. These proposals aim to protect the superannuation balances of these members from being eroded by insurance premiums, but may lead to higher insurance premiums for other members. Importantly, fund members will still have the opportunity to obtain insurance cover if they choose to do so. Reuniting lost or inactive superannuation In an effort to prevent people with multiple super accounts from having their savings excessively eroded by fees, the Australian Tax Office (ATO) has been given the power to actively reunite Australians with their lost and inactive superannuation. Under the proposals, all super accounts that have not received a contribution for 13 months, with balances below $6,000 will be classified as inactive and transferred to the ATO. These are typically accounts belonging to young employees, low income earners and seasonal workers. The ATO will then use data matching to automatically consolidate these accounts with fund members’ active accounts. The Federal Government expects the new system will reunite $6billion of superannuation with 3 million fund members’ active accounts in 2019-2020. Removal of exit fees and fee caps The Federal Government proposed two new measures in the Budget to address the impact of superannuation fees on member balances and make it easier for members to consolidate their accounts. It will abolish super fund exit fees and cap certain fees on balances of less than $6,000 at 3 per cent. The Government estimates the fee cap on low balances will return $570million to super fund members. High income earners with multiple employers protected from super contribution breaches High income earners with multiple employers will be protected from inadvertently breaching the annual super contributions limits. Individuals who earn more than $263,157 a year from multiple employers will be allowed to make wages from certain companies exempt from the Super Guarantee. Under recent rules, individuals earning more than this amount from multiple sources face a tax bill if they contribute more than the annual limit of $25,000 including the employer contribution. FOR RETIRED WORKERS Expansion of pension scheme The Pension Loans Scheme is a reversemortgage style scheme that enables retirees to release equity in their home to boost their retirement income. The scheme – administered by Centrelink – is currently only open to retirees who are eligible for a part age pension and is not widely used. The government has proposed extending the scheme to all retirees including full-rate age pensioners and self-funded retirees. Under this scheme, full pensioners will be able to increase their income by up to 50 per cent of the age pension. This will enable single retirees who own their own home to boost their income by up to $11,799 and couples to boost their retirement income by up to $17,800 without impacting their eligibility for the age pension or other benefits. Expansion of pension work bonus The pension work bonus allows pensioners to earn up to $250 each fortnight without reducing their age pension. It will be expanded to allow pensioners to earn an extra $50 a fortnight ($1,300 a year) without reducing their pension payments. The pension work bonus will also be expanded to self-employed people who will be able to earn up to $7,800 a year, without reducing their pension payments. The government expects 88,000 people to take up the option to work more as a result of the changes. Retirees aged between 65 and 74 with a superannuation balance below $300,000 will be allowed to make voluntary super contributions for the first year that they no longer meet the work test requirements. New age pension means test for lifetime income streams From 1 July 2019, new age pension means testing rules will be introduced for pooled lifetime income streams. The rules will assess a fixed 60 per cent of all pooled lifetime product payments as income, and 60 per cent of the purchase price of the product as assets until 84, or a minimum of 5 years, and then 30 per cent for the rest of the persons’ life. This means people using these products will lose less pension entitlements. Importantly, what has not changed? The Budget did not contain any major changes to the way superannuation is taxed or any changes to the concessional or non-concessional cap limits on voluntary superannuation contributions. The timetable to increase the superannuation guarantee rate to 12 per cent was left untouched. The next planned increase from the current level of 9.5 percent to 10 per cent is scheduled to occur in 2021.