Accounting for Psychologists Newsletter #10

First a proud Dad moment: It’s going to be a really big month for my family.  My daughter and son will both be competing for Australia in two archery tournaments - the Trans-Tasman Youth Challenge and then the Oceania Championship. It’ll be a wonderful experience for them. If you’re in Adelaide at Easter time, come up to the beautiful little hills town of Ashton and help me cheer them on!

Right, onto business.

This month’s newsletter is based on some of my experiences over the past few weeks. 

The big one is contracts.  Recently I’ve seen 3 or 4 contracts that are not being invoiced correctly, because of confusion over which type of contract it is.  This can lead to difficulties with claiming GST and other tax related matters. If you’re a self-employed psychologist working as a contractor or a subcontractor it’s really worthwhile asking me to have a look through it to answer any questions you have.

I’ve also had a couple of very interesting questions relating to tax deductions for travel this month, so I’ve summarized my answers and included them here as I think they’ll be of interest to a lot of people in our community.

Finally, we should all follow the scout’s motto of Be Prepared.  For  self-employed psychologist that means being prepared for your tax bill.  There’s no escaping it and if you’re  prepared it will be (almost) painless.

 This month the newsletter will cover:

• Important dates for accounting and tax
• Tax deductions for stop-overs on the way to a conference
• Tax deducting a caravan
• Benefits of putting money aside for tax in your business

Important Dates for Accounting

Tax deductions for stop overs on the way to a conference

I see there are some psychology conferences held in beautiful parts of the world this year, and I’ve had a few enquiries about the tax deductibility of stopovers and bringing the family along.  So to quickly recap my article from the December Newsletter (link here) :

The potential tax deductions you can claim depend on the nature of the trip.

 If the main purpose of the trip is for the conference and the holiday is only an incidental part of the travel, then you are able to claim the airfares in full. Here’s a link to the ATO website on travel expenses: 

https://www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/Deductions-for-travel-expenses/ 

Please note that the ATO requires you to keep a  travel diary.

When it’s a mix of business and personal, you need to apportion the expenses. 

If you’re accompanied by your family, it will be hard to justify to the ATO that the personal part of the trip is merely incidental.  

If the ATO believes that the  conference is  an incidental part of your trip you won’t be able to claim any of the travel costs. You can only claim cost directly related to the conference such as conference fees, and if the conference is over 2 days, you might be able to claim the cost of one night’s accommodation.

 If you make stop-overs on your way to the conference for only a day or two in order to break up the journey,  it should be okay for you to claim your airfares – once again assuming that the main purpose of the trip is for work related. The costs associated with the stopover will be personal in nature and won’t be deductible.

Caravan as a tax deduction

Now that it’s possible to work remotely, I have several clients who are planning to travel and continue to work.  Some plan to go to rural areas and meet clients in person and after a few months move on to another area, while maintaining contact and treatment using telehealth.

Some other psychologists see all of their clients online and can work from anywhere.

Along those lines, my colleague Sandra had a question this month from a client who wanted to know whether the purchase of a caravan to live in while she worked away from home as a subcontractor would be an allowable deduction.

Sandra researched the answer and found that:

If the caravan is used only for overnight business trips, then the client can claim depreciation deductions on it. She can also deduct maintenance expenses she’s using the caravan for business purposes.

However, if she is working away for more than 21 days, it is considered living away from home temporarily and it is not deductible.

Put money aside for your tax bill throughout the year

If you’re self employed as a contractor or a practice owner I’m sure you’ll have heard me talking about having 3 separate bank accounts for your business. 

• Bank Account 1: A day-to-day account to receive income and pay bills.
• Bank Account 2: Used to put money aside for tax & super.
• Bank Account 3: Used to put money aside for emergency use.  Ideally you build this account to about 3 months of your revenue. You can also use this money to pay yourself when you are on holiday
  • e.g. Christmas Break etc.

Note, if you’re a sole trader, you can just 3 open normal bank accounts under your personal name rather than specific business bank accounts.

Putting money aside for tax in your business can provide a number of benefits.  It can help you to budget for your business expenses and ensure that you have enough money available to cover your taxes and you can avoid having to dip into your business's operating funds to pay taxes, which can help to maintain cash flow.  You’ll also avoid  penalties and interest charges from the ATO.

I hope you’ve found some helpful information in this newsletter. 

I may be a little busy next month, what with all the cheering I’ll be giving to the Australian youth archery team, so my newsletter might be a little later than usual, but as always if you have any tax or business related questions don’t hesitate to get in touch.  If I’m not in the office Olivia, Kristy and Zoe from the Accounting for Psychologists team will be there to help you.

Aussie, Aussie, Aussie!

Best wishes.

Fairuz & the Accounting for Psychologists Team