Home – New Forums Starting your journey Can I claim expenses for Online payments?

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  • #974776
    umair862
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    Hi Everybody,
    I have started a web development business and sometime I outsource work by using freelance websites. Payments are made to suppliers using websites’ online payment systems. I have following questions:

    1- Can I claim expenses for the payments I pay to suppliers online. Sometimes suppliers are overseas but website take money from me and pay to suppliers.
    2 – What are the other tax matters involve in this kind of payments?

    I would really appreciate your help.
    Regards,
    Umair

    #1070238
    John Kirk
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    Hi Umair

    Yes, you can claim any business related expense as an income tax deduction.

    #1070239
    John Kirk
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    To answer Part 2 of your question Umair, if registered for GST you should only charge this tax to those buying off you in Australia. Overseas purchasers do not pay GST and you cannot claim GST on payments to your outsourcers.

    #1070240
    JacquiPryor
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    Further (and if John is still checking this thread may be able to confirm this is correct) – If you are purchasing from overseas (or from Australia for that matter) for the purposes of completing work for a client then this might be a ‘cost of sale’ rather than straight business expense. I don’t think this will effect the tax question/answer but if you are tracking your outgoings in software etc these might be a cost to you of doing the sale, rather than an expense of running your business.

    #1070241
    umair862
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    JacquiPryor, post: 87537 wrote:
    Further (and if John is still checking this thread may be able to confirm this is correct) – If you are purchasing from overseas (or from Australia for that matter) for the purposes of completing work for a client then this might be a ‘cost of sale’ rather than straight business expense. I don’t think this will effect the tax question/answer but if you are tracking your outgoings in software etc these might be a cost to you of doing the sale, rather than an expense of running your business.

    Thanks John and JacquiPryor for your replies:

    @JacquiPryor

    Now I am bit confused. I will explain a bit more.
    I provide web development services to clients in Australia and I run my business in Australia. However, I use American or Indian websites (which is another business entity overseas) to outsource my work. They pay the contractors (I am not paying the contractors directly, I pay to the websites).
    I don’t earn more than $75,000 so GST does not apply to me.
    Can I claim the money paid to websites as business expense?

    Example:

    Australian Client pays me $1000 for a website.
    I pay $200 to an outsourcing website like elance.com
    Can I claim $200 as an expense?

    Regards,
    Umair

    #1070242
    JacquiPryor
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    Hi Umair

    Sorry, I probably confused things more than needed.

    Short answer – yes, any money your business has to pay as a part of your business – whether to someone in Australia or someone in another country you get to claim. As GST doesn’t apply to you because you are not registered, that part won’t be affected.

    At the end of the financial year when you do returns etc, one of the ‘items’ for want of a better description is total of business expenses etc.

    In your example (it can still be claimed)

    Australian Client pays me $1000 for a website.
    So – this is your income

    I pay $200 to an outsourcing website like elance.com
    This is a ‘cost of sale’ incurred to provide the client with their $1000 website

    Can I claim $200 as an expense?
    Yes, it’s still claimable.

    In accounting software like MYOB though, “expenses” and “costs of sales” (whilst you get to claim both) are tracked a bit differently is all I was mentioning – my business ‘expenses’ are things like rent, power, wages, printing etc – the things needed to run the business

    Cost of sales include fees that I have to pay to someone else in order to provide the invoice/service to my client.

    sorry if I confused you further unnecessarily – wasn’t my intention :)

    #1070243
    John Kirk
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    JacquiPryor, post: 87537 wrote:
    Further (and if John is still checking this thread may be able to confirm this is correct) – If you are purchasing from overseas (or from Australia for that matter) for the purposes of completing work for a client then this might be a ‘cost of sale’ rather than straight business expense. I don’t think this will effect the tax question/answer but if you are tracking your outgoings in software etc these might be a cost to you of doing the sale, rather than an expense of running your business.

    This is correct Jacqui. Either way is acceptable as far as the ATO is concerned but, from an accounting point of view, you are right.

    #1070244
    Steve_Minshall
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    I sure hope so because I spend tens of thousands of dollars a year on google adwords which is an overseas web based service:)

    #1070245
    umair862
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    Thanks guys for your Help.
    Now i understand it.
    Regards,
    Umair

    #1070246
    NickHumphries
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    I do the same thing, outsourcing my work. Since I am young and am new to deductions, how exactly does it work?

    I pay $200 for someone to make the website. How much of that $200 do I get back from the ATO?

    Or lets say I buy a new iphone, can I claim the cost of that phone and it’s plan as I have a business?

    Thanks!

    #1070247
    Steve_Minshall
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    NickHumphries, post: 87618 wrote:
    I do the same thing, outsourcing my work. Since I am young and am new to deductions, how exactly does it work?

    I pay $200 for someone to make the website. How much of that $200 do I get back from the ATO?

    Or lets say I buy a new iphone, can I claim the cost of that phone and it’s plan as I have a business?

    Thanks!

    It is not a question of getting anything back from the ATO. The ATO don’t give anything back unless they have been over paid.

    When you spend money in the course of your business this reduces the profits of the entity. Therefore the tax liability is less because your profits are less. How much less money you are liable to hand over depends on a whole load of things like how much you have earned, whether you are company, business, partnership, etc. and many other things relating to your individual situation.

    So the answer to your question is you can claim all of a genuine business expense against what ever tax you would otherwise be liable for. A genuine business expense is something that you are only paying for to enable you to run your business and is not giving you a personal benefit.

    So your business website is fully tax deductible as a business expense.

    If you are a sole trader then the saving you will make is equivalent to your top income tax percentage. ie your total income for the year is $60k, tax rate= 30%. Therefore the real cost of your web site to you is $140. Now this does not mean the ATO gives you $60 back towards your web site. It means that you have reduced your liabitiy on your next tax return in a year so by $60. If you don’t make a profit the web site will have cost you $200.

    Now it is more complicated than this and I am not an accountant, but for expenses under $1000 this gives you a rule of thumb.

    Your iphone on the other hand could have a personal use element, that is it is not a clear cut business expense. This I would talk to your accountant about.

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