With the rise in peer to peer business and the growth in the gig economy, it is unsurprising that the ATO is increasing its attention in this space. Just after the Federal budget was handed down, it updated its page on the sharing economy, signalling its intention to monitor this growing industry closely.
It isn’t only the ride sourcing or home rental side of it, but also providing personal services, including creative or professional services like graphic design and creating websites.
The 2018 Federal budget also signalled the Government’s intention to limit large cash transactions as well.
It is more important than ever to ensure that you are complying with the current legislation, keeping accurate records and seeking the services of a tax professional to help you identify the deductions possible for your specific circumstances, especially with the clear signs the ATO is watching closely.
One-third of all Australians work in the freelance space
Australia already boasts more than 4.1 million freelancers and sole traders, or one-third of the workforce, operating their businesses in Australia. That number is already a couple of years old with The Australian Industry Group (AIG) finding more than 4 million Australians, one-third of the population, did some freelancing in 2014 and 2015 – before companies such as Uber, Deliveroo and Airbnb took off.
For many workers understanding their tax obligations can become a minefield, but with preparation and proper record keeping, you might be pleasantly surprised at just how much you can deduct from your taxable income.
Deductions you can claim if you work from home
Having a home office has quite a few benefits in terms of deductibles. You can claim back a portion of your household running expenses like electricity, gas, internet, phone and even rent or mortgage. Utility calculations are based on the percentage of your home dedicated to your office or work and don’t take into account your kitchen or bathroom.
Phone and internet deductions are calculated on the amount of time you use them for work compared to personal use.
You can also claim back a proportion of your rent, mortgage, insurance or rates using the same calculation as for utilities. It is worth noting that mortgage, rates and costs associated with home ownership may also come with complications in the form of CGT. Many homeowners choose not to claim partial mortgage payments for this reason.
In the more positive news, you can claim the depreciation on the cost of your office fit-out, fixtures, furniture and equipment. That includes your desk, curtains, carpets and rugs and even artworks for your walls.
Again if you claim renovation costs (such as installing partition walls and additional rooms), this may have CGT implications, which could cost you more in the long term, when you sell your property.
Other claimable expenses
You may be entitled to an immediate refund (no depreciation) through the Federal Government’s $20,000 instant asset write-off. This arrangement has been extended into 2019 in the latest budget as well, which is excellent news. If you have a big-ticket item or two you need for your business, you might as well purchase before 30 June to take advantage for this year, and you can do it again next year too.
Business expenses for business owners also include: advertising and sponsorship costs; bad debts; interest on money borrowed; stationery expenses; website maintenance and website provider costs; software costs; parking fees; PR expenses; some legal fees; tender costs (even if your tender was unsuccessful); subscription costs for business-related media or professional journals; and education, technical and other expenses related to your professional development.
If you need to travel to visit clients or customers in your private car, you can claim mileage, tolls and a proportion of your car insurance. You are not required to keep receipts if you travel less than 5,000 km per year, but you may be required to provide a basis for the journey, which may include providing a copy of your business diary if requested. If you travel more than that, then a logbook is required for three months, and you should have all your receipts for fuel, registration, insurance, repairs and even car washing. Parking expenses can also be claimed, but not parking fines.
Freelancers and sole traders are not required to contribute to Superannuation, but if you can afford it, it is not a bad habit to get into. The government will even co-contribute up to $500 for low and middle-income earners contributing to super, which is a bonus.
You must declare your crowdfunding income
As more entrepreneurs raise money for their businesses through crowdfunding, the ATO is also looking closely at the increasing frequency of crowdfunding and assessing the money as part of your taxable income.
There are four types of crowdfunding: donation-based, reward-based, equity-based and debt-based and some or all of that income may be taxable depending on the nature of your crowdfunding arrangement.
A tax or financial professional can help you define whether the money you receive is income and whether you need to consider GST. If it is income, you will need to include it in your tax return, and there may be deductions you can claim. You will need to keep receipts and records relating to the cost of your crowdfunding exercise.
Effectively crowdfunding is viewed by the ATO in the same way as conventional investment and financing. Like more traditional funding arrangements, you will need to keep all records (in English) for five years, starting from when you prepared or obtained the financial records, or completed the transactions, whichever is the later.
Record-keeping and compliance is a must
Every business brings with it a unique set of circumstances, but they all require meticulous record keeping, especially in light of increased scrutiny on the gig economy.
It is no longer viable to keep receipts in a shoebox under the bed, and software accounting packages are essential to the success of any business. There are packages available to suit all sizes of businesses, from sole traders through to more established companies with payroll obligations.
These software packages are entirely tax deductible.
Similarly, finding a good accountant with experience in start-ups or sole traders is a high priority. While you may be able to get through BAS reporting using your software, a financial professional can help you identify deductions specific to your industry and business.
Once you realise just how much you can claim for your business, you might find tax-time less of a chore and potentially a hip-pocket bonus.
Oliver Garside is the COO of Rounded