Tax season has arrived, so it’s time to put your problem-solving skills to the test. But fear not, create has again teamed up with Myles Pover, Principal at accounting firm RSM Australia, to run through the five most common deductions for engineers.
Shedding light on the intricacies of tax forms might not be as thrilling as designing bridges or coming up with the next generation of bioplastics but the both require attention to detail.
“Having clear and detailed records is paramount,” said Pover.
“You need to keep your receipts and records in order to substantiate your claims. That’s really the most important thing,” he said.
“The ATO has an expectation of what an engineer may claim, and how much the deduction might amount to. If you fall outside these predefined ranges, it could raise a flag and the ATO may subject you to a review. So if you are claiming deductions – and particularly if those deductions are for a significant amount – you need to have kept appropriate records.”
The ATO has a digital tool, myDeductions, to help you do this.
“The best way to prepare for tax time is to note down your deductions while you go,” said Pover. “You need to have made a purchase in order to claim a deduction on the amount.”
Here are five of the most common deductions engineers can make.
1. Car expenses
There are two main methods to claim car expenses.
“One is called the cents per km method,” said Pover. “This is based on an estimate of the number of work-related kilometres that you travel during the year.”
The rate is set at 78 cents per kilometre for 2022-2023, up to a maximum of 5000 kilometres. It should be noted that you can’t claim for travel expenses between home and work.
“This is purely for worksite to worksite travel, or office to worksite travel and back to the office again.”
Since the amount is capped at 5000 kilometres, for engineers travelling longer distances or taking more frequent work-related trips, Pover recommends using the logbook method.
“Record the kilometres travelled for work during a 12-week period, then take that figure as a proportion of the total kilometres travelled in your car to give you a business use percentage. You can then take that business use percentage and multiply it by the sum of all your car expenses for the year, including fuel, registration, insurance and repairs to arrive at your deduction.”
The 12-week logbook can be used for five years, provided the nature of your work and travel remains the same.
“It’s a great option if you’re incurring a lot of car expenses because it’s not capped at 5000 kilometres, but it does take up more administrative time.”
2. Occupation clothing
Do you wear a high-vis jacket to perform your work? Or have you had to purchase steel cap boots? You might be able to claim a deduction.
In many instances, a company will grant an employee an allowance for a protective item. If the employee uses that allowance to purchase protective clothing, they may be able to claim a deduction for that expense.
Deductions are also available for compulsory uniforms, as well as occupation specific clothing. According to Pover, any item purchased with a company logo is classified by the ATO as a uniform.
“Occupation specific clothing must distinctly identify you as a person within a particular profession.” This could apply to chemical engineers who require a lab coat, for instance, but it doesn’t extend to office attire.
“Conventional clothing that you wear to work, such as a suit, is a private expense and not deductible.”
3. Tools and equipment
To claim a deduction for tools and equipment, such as computers, calculators and hand tools, the cost of each tool must be less than $300. You can only claim a deduction for the work-related use of the item.
If the item costs more than $300, you need to determine the tool’s effective life and claim a deduction for the depreciation of that tool, said Pover.
Individuals operating a business can often deduct the cost of any assets acquired for their business by accessing the temporary full expensing measure.
4. Working from home expenses
There are some changes for this financial year. Gone is the shortcut method used throughout the COVID march to the home office replaced by a revised fixed rate method.
- The revised fixed rate method applies a 67 cents per hour rate to each hour worked from home, and includes utilities and consumables but you can claim other working from home expenses separately to this.
- Through the actual cost method, you can calculate expenses incurred as a result of working from home.
“Your record keeping needs to be really good if you’re using this method,” says Pover.
More information regarding the different working from home deduction methods can be found on the ATO website.
5. Education and training
If you’ve pursued some form of self-education or on-demand training, you might be able to claim a tax deduction for the cost.
Employees will need to meet a few criteria. As outlined on the ATO website, you can claim a deduction for self-education and study expenses if it:
- Maintains or improves the skills and knowledge you need for your current duties
- Results in or is likely to result in an increase in your income from your current employment
“There needs to be a clear connection between the study and your work,” said Pover.
“You may be able to claim for the cost of undertaking a Masters in Engineering, including fees paid for textbooks.”
Other deductions
One deduction that many people may not be aware of is voluntary superannuation contributions.
“You may be able to claim a tax deduction for superannuation contributions that you make personally provided they don’t exceed your concessional contributions cap, which is $27,500 for the 2023 year,” said Pover.
“I would recommend talking to your financial planner or accountant if you’d like to make additional contributions to superannuation before 30 June 2023.”