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  • #979556
    EmbalmSkincare
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    Hi everyone,

    I have another tax question.

    Say a tradie is working as a casual employee for wages and has expenses such as tools, city link, water and electricity bills etc.

    Would he be able to claim those expenses in his tax return or only if he was working as a sole trader?

    Thank you in advance!

    Regards,
    Mel

    #1115174
    JacquiPryor
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    If they are expenses incurred in order to perform his duties as an employee, then yep they’ll be claimable. When it comes time to do his tax return there’s a whole section about ‘work related’ expenses that are relatively easy to follow in terms of what is claimed where etc.. (i.e one is travel related expenses, where you could put Citylink etc).

    There’s also a section where you can claim the appropriate portion of mobile phone/electricity/internet etc.

    #1115175
    EmbalmSkincare
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    Thanks so much Jacqui!

    Just received this from our new tax agent and started to panic

    “Where you have a business loss as a sole trader and you do not meet 4 tests (which is the case for you) the loss cannot be offset against other income and
    must be carried forward.”

    With the question whether the expenses are related to wage income or sole trader income.

    Thank you!

    Regards,
    Mel

    #1115176
    Divert To Mobile
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    Fingerfood, post: 129223 wrote:
    Thanks so much Jacqui!

    “Where you have a business loss as a sole trader and you do not meet 4 tests (which is the case for you) the loss cannot be offset against other income and
    must be carried forward.”

    Hi Mel – It may be relevant, what were these 4 tests and which did your accountant think you failed ?

    Steve

    #1115177
    apj
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    Hi Mel,

    Your accountant is referring to the non-commercial loss rules which can apply to small loss making businesses run by sole traders or partnerships to stop the individual offsetting business losses against other taxable income.

    It’s important to distinguish between a deduction and a loss. A deduction is an outgoing that reduces the gross income of a particular activity (whether employment or business / sole trader income). A loss only arises where deductions are greater than the income earned from that activity for the year. In the case of a business as a sole trader, if you make a loss then unless you satisfy one of the four applicable tests that loss cannot be offset against other income you might have such as salary. Instead the loss is carried forward and can only be offset against future income from that same business activity until one of the four tests is satisfied.

    For a sole-trader tradie only 2 of the 4 tests are likely to be relevant; profits in 3 of the last 5 years or assessable income over $20k. In either of these instances your business losses are not quarantined and can be offset against other income.

    Hope I haven’t muddied the waters too much for you!

    Cheers
    Aaron

    #1115179
    EmbalmSkincare
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    I’ve now gone back to my tax agent and told them that the expenses relate to wages income and that those expenses expenses incurred in order to perform his duties as an employee.

    I hope that’s enough.

    A bit too thorough if you ask me… :-)

    #1115180
    Earthmover
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    Hi fingerfood,

    I was told the exact same thing by an accountant who I went to.
    I also went into panic mode as it meant quite a difference in taxable income for me and my first year trading.

    For various other reasons i didn’t quite like this accountant so went to see another who services a friend of mine. They quickly put everything into plain English for me and things turned out the way I had budgeted for.

    So the solution to your problem might be to see another accountant?
    Their just like the rest of us, some average and some brilliant at what they do!

    #1115181
    James Millar
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    I think that’s all fine as long as they aren’t just telling you what you want to hear. Keep in mind that being a professional accountant regularly involves being the bearer of bad news. There is nothing wrong with second opinions and changing accountants if you feel uneasy but always be mindful when you receive completely contrasting advice or if the advisor is dismissive of potential audit risks.

    I recall an occasion several years ago when a new large client group came to us from another firm. Our engagement was approved and the client transfered all authorities across to us in the normal way. We undertook a review of their group entities and found massive compliance issues with related party loans and Div7A compliance. We had to tell them the bad news – they were up for about half a million in tax (immediately). Upon advising of the issues the client then immediately re-transferred back to the old accountant that had been complicit in the activities. Path to least resistence. Hopefully their accountants PI insurance is paid up.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
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