As the cliche goes, death and taxes are inevitable, but if you’re an engineer busy building submarines, trying to combat climate change or studying medical breakthroughs, understanding your tax return might not be at the top of your mind.
Thankfully it doesn’t have to be.
Create asked Mark Chapman, Director of Tax Communications at H&R Block and Myles Pover, Principal at accounting firm RSM Australia to share their best tax advice for engineers.
Use your eye for detail
The first piece of advice both Chapman and Pover have is to only claim what you’ve spent.
“It seems obvious, but the number one thing to remember is you need to pay for it to claim it,” Pover said.
In other words, you can only claim expenses you have paid for yourself and have not been reimbursed for by your employer.
Make sure whatever you do claim, you can provide the receipts for.
“Don’t inflate deductions in order to get a bigger refund and only claim for costs you can prove you spent, by producing an invoice, receipt or bank statement for instance,” Chapman said.
It is also worth double-checking the data pre-filled by the Australian Tax Office (ATO) in your tax form.
“Don’t assume that this income data is correct or complete. Many third parties, such as banks, won’t pass information about you to the ATO until late July or early August, so early lodgers who use the ATO’s myTax system will often find lots of data missing from their pre-fill,” Chapman said.
“If you omit income and get questioned by the ATO, the legal burden will be on you, even though you’ve taken the information straight from the ATO’s systems.”
The WFH shortcut
Last year the ATO created the ‘shortcut method’ to simplify deductions for employees working from home.
Remote workers can claim 80 cents for each hour worked from home between 1 July 2020 and 30 June 2021.
The shortcut method aims to cover all utility costs incurred while working from home, from electricity to internet and phone usage. It’s important to note that if you use this method, you can’t claim additional expenses relating to working from home.
Once you’ve calculated the amount you can claim (80 cents x hours worked from home) you record this in the ‘other work-related expenses’ question in your tax return. The description should be ‘COVID-hourly rate’.
“Before the shortcut method you had to sit down and work out what percentage of your bills related specifically to working from home,” Pover said.
“Depending on your situation, it can be worth using the fixed rate or actual cost method. But you need to have accurate records you can refer to.”
You may need to provide documentation as evidence of the hours you worked remotely. The ATO website says timesheets, rosters and diaries are acceptable forms of proof.
Simplifying things for SMBs
For sole traders and small businesses owners, Chapman recommends utilising the ‘temporary full expensing’ measure.
“This allows you to claim an immediate tax deduction for all capital purchases, irrespective of the cost, rather than depreciating the cost over several years, as used to happen,” he said.
“The allowance is available to all businesses with an aggregated turnover of less than $5 billion.”
This can be good for items such as computers, tablets and phones but is also good for work-specific tools and even office equipment.
However, you better buy soon.
“The asset you acquire also has to be used or available for use in your business, so realistically you need to get the item delivered and installed by 11:59 pm on 30 June,” Chapman said.
“If you buy something now for delivery and/or installation in July, you won’t be able to claim the deduction this tax year.”
Travel expenses
The area most engineers slip up, Pover said, is when claiming travel expenses.
“Too many people try to claim expenses that don’t meet the definition of work related,” he said.
“Travel for work-related purposes, such as between work sites, is deductible. Travelling from home to work is not.”
When claiming travel expenses you must keep accurate records to prove they’re work related.
One way to do this is through a log book. This means keeping track of kilometres travelled for 12 weeks. This is valid for five years, provided your travel doesn’t change too much over this period.
The second method is to measure it by cents per kilometre, which means providing a reliable estimate of kilometres travelled for work. You can claim up to 5000 kilometres.
“You must be able to substantiate your claim, you can’t just throw in 5000 kilometres,” Pover said.
“It doesn’t need to be an extremely detailed record, mentioning in your diary that you traveled from site A to site B can be enough.”
Training, subscriptions and dues
Something people forget about is claiming expenses related to training and development.
“You can claim a deduction for any education or study expenses if they directly relate to your current employment or are likely to result in an increase in your income,” Pover said.
“For example, courses related to some kind of accreditation or a master’s [degree].”
You cannot claim training that is only tangentially related to your role, or training you are completing to find another job.
Costs associated with work-related events and conferences are also deductible, so if you’re traveling for a work event, related transport, meals and accommodation can all be included.
For engineers involved with an association, such as Engineers Australia, or those who have a subscription to a trade magazine, you can claim these costs as long as they directly relate to your profession.
If you subscribe to other trade magazines or pay dues to an association not related to engineering you can claim up to $42 per income year for these.
Make sure you hold on to any invoices or statements you received associated with these costs so you can provide evidence if required.
“If you haven’t got those statements, I would be sending an email out now to get them,” Pover said.
Record keeping
Pover’s advice for record keeping is simple: “do it as you go”.
“If you get a statement from an association you’re part of, file it away. When you pay for your car registration, add that to the file,” he said.
“There are apps and software out there that can help too.”
It’s also good to start as early as possible.
“Start saving those receipts from 1 July to maximise the benefits next tax time. Save them all in a file on your computer or in an app on your phone to make certain you have everything,” Chapman said.
Thanks to modern technology, you don’t need to keep reams of receipts for every work purchase you make, but you should keep digital copies. These can be photographs or scanned copies of physical receipts as long as the following is easily legible and in English:
- The name of the supplier
- Amount of the expense (in Australian dollars)
- Nature of the goods or services
- Date the expense was paid
- Date of the document
If you’re looking for more information on what engineers can claim at tax time, the ATO has industry specific resources on its website. You can check out a handy one-page explainer here.