Accounting for Psychologists Newsletter #12

June Newsletter #12  

YOUR TAX RETURN

It’s nearly the 30^th of June -  Accountants’ New Year - so this newsletter will focus on deductions. 

Here's my new article Deductions for Rental Properties with  a *bonus* Rental Property Deduction Checklist. And to make sure you’re ready for your tax return I’m including my previous newsletter articles:   

•    Deductions for Working from home with* bonus* WFH diary spreadsheet
•    Deductions for Vehicle Expenses
•    Deductions for Travel
•    Deductions for Self-Education

It’s going to be a looong newsletter packed full of valuable information to help you best prepare for your tax return.  In fact, don’t keep it a secret!  If you know someone who might find this useful feel free to share it with them.

If your New Year’s Resolution for 30 June is to get financially well organized, check out my book Sorted.

You can order it online https://www.openbookhowden.com.au/product/sorted-financially-well-organised/

“Sorted” provides practical information and easy to use worksheets and checklists to help you become financially well organised in each of the eight key areas of personal finance:

• Personal Budgeting
• Savings
• Investments
• Taxation
• Debt
• Insurance
• Retirement
• Estate Planning

Download an extract of Chapter 1: Personal Budgeting here: https://www.sheridans.net.au/media/website_pages/sorted/Sorted-chapter-1-extract.pdf

Important Dates for Tax

Tax deductions for Rental Property Owners

Owning a rental property comes with a host of potential tax deductions. To ensure you're taking advantage of all possible deductions, check out our Rental Property Tax Deduction Checklist attached to this newsletter. It provides a brief outline of what expenses can be claimed.

However, please note that travel expenses related to inspecting, maintaining, or collecting rent for your rental property can no longer be claimed as a tax deduction.  Nor can you claim the cost of owning vacant land.

Additionally, expenses related to acquiring or disposing of the property cannot be claimed.

Tax deductions are only on things that you pay for, so if your tenant pays the water and electricity bills then you cannot claim these as a deduction.

As always, it’s important to keep clear records of your all expenses. 

Improvements to the rental property, that are not repairing or maintaining it,  such as renovating a kitchen or bathroom or installing air conditioning can be claimed as depreciation over time.

For complete details on tax in relation to rental properties the ATO has prepared this guide book.

 Rental properties (PDF 1.2MB, NAT 1729)This link will download a file

Tax laws and regulations change all the time, so  it's worthwhile consulting with us to  ensure  you’re up to date with the most recent tax laws and regulations related to rental properties, and how they apply to your specific situation.

Tax deductions for Working from Home 2023

If you work from home  to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking the odd  call,  you’re entitled to claim some tax deductions.  These are for the additional running expenses as a result of working from home like heating or cooling that wouldn’t be on if you weren’t at home that day working.

There are two ways to calculate Working from Home Deductions, the fixed cost method and the actual cost method.  The fixed cost method has recently changed, and the new rate is the one that will be used in your 2022–23 income tax returns.

The first is the Fixed Rate method. 

With this method you can now claim 67 cents per work hour which will cover the work-related portion of your costs for electricity and gas, mobile and home phone, data, internet, stationery, and  computer consumables like printer ink, USBs and cables.

The fixed rate covers the cost of all these things, so you cannot claim a separate deduction for them.  It also saves a lot of time, since you won’t need to calculate the exact proportion of your electricity or internet that you use for work. 

You will need to keep records or receipts for each of these expenses.

In addition, you no longer need to have a dedicated home office.

To use the fixed rate method you will need to show the ATO exactly how many hours you work from home using a diary or timesheet for the entire year.  This requirement begins on March 1.  From 1 July 2022 to 28 February 2023, the ATO will accept a record which represents the total number of hours worked from home -for example a 4 week diary. However, from 1 March 2023 onwards, you will need to record the total number of hours you work from home. Attached you'll find our Working from Home Diary Excel spreadsheet to make it easy for you to record the number of hours you work from home. 

Another change is that you will make a claim for a separate deduction for the decline in value of assets used while working from home, such as computers and office furniture, and also for their  repairs and maintenance.  If you  have a dedicated home office space, you can claim a separate deduction for its cleaning costs.

The second method is the Actual Cost method, and it hasn’t changed.  In this method you work out the actual work-related portion of all your running expenses and claim that.  These are the actual additional running expenses as a result of working from home.  To show this you can keep a diary throughout the year showing the number of days you worked from home, or you can keep a detailed diary over 4 weeks which represents your typical working from home pattern.

You need to keep a record of what you spend on expenses, and items you buy to work from home.  If it’s something you use for both work and home, like internet costs, you need to calculate what percentage is used for work and also keep a record of how you calculated it.

The tax office will want to see how you worked out your deduction, so you need to keep all the receipts, bills and so on which show the additional running expenses you incurred while working from home.   

No matter which method is used, when you buy an expensive item, it usually becomes less valuable over time (depreciation).   If this item is something you use for work, you can claim this depreciation on your tax.  At present, if it costs less than $300 you can claim its depreciation in the year you bought it.  For example, if you purchase a printer for $289 which you use 80% of the time for work-related purposes and 20% of the time for private purposes, you can claim a deduction of $231 (80% × $289) in the income year you purchased it.

If the item costs more than $300, use the  depreciation and capital allowances tool to work out how much you can claim over time.

Of course, you’ll need to keep receipts for these items showing when and where you bought them, how much they cost and when you started using them for work.  You’ll also need to show how you work out your percentage of work-related use, such as a diary.

By the way, you cannot claim for coffee, tea, milk and other general household items which might be provided by your employer at work. No, not even that Tim Tam at 3pm which keeps you going through the afternoon.

You also cannot claim a deduction for the cost of items your employer provides like a laptop or  mobile phone, or for expenses which your employer has reimbursed you.

If you have a dedicated home office which is your principal place of work, you may also be able to claim occupancy expenses like your rent or mortgage, council rates, water rates and home insurance.  However, this means that when you sell your home it will be subject to capital gains tax, so talk to your accountant about whether this is worthwhile for you.

Car expenses for individuals 

The Golden Rules of claiming a tax deduction for any work‑related expenses are:

• you must have spent the money yourself and not be reimbursed
• it must directly relate to earning your income
• you must have a record to prove it.
• you can only claim the work‑related portion of an expense.

You can’t claim the cost of normal trips between home and work, even if you live a long way from your usual workplace or have to work outside normal business hours.

You can claim the cost of using a car that you own when you drive:

• directly between separate jobs on the same day – for example, driving from your main job as a psychologist to your second job as a university lecturer
• to and from an alternate workplace for the same employer on the same day – for example, travelling to a client or a hospital or a medical centre and then back to your workplace.
• From your home to an alternative workplace and then to your normal workplace – for example, from home to a school to speak to a client’s teachers and then to your office as an educational psychologist.
• From your work to attend a work-related meeting or conference that is not at your normal workplace – for example, to attend a CPD event at a conference centre.
• If your home is your base of employment and you start your work at home and travel to a workplace to continue the work.

If you claim car expenses, you can use the logbook method or the cents per kilometre method to calculate your deduction.  With all methods you will need to keep records for 5 years.

• The logbook method requires that you keep a logbook of your car use for 12 continuous weeks.  For each journey (both work and personal) the logbook must show:
• The date of travel
• The reason for travel
• Odometer readings at the start and end of the trip
• Kilometres travelled

You can use this to work out the percentage of time you use the car for work.

The logbook information can be used for five years, unless you get a new car or change jobs. There are minor recordings that need to be made at the start and end of the year, but you won’t need to repeat the 12-week process.

You can use a paper logbook or the electronic logbook in the myDeductions tool in the ATO app to record the information.

You must also keep written evidence of all your car expenses:

• All fuel, oil, (you can keep receipts or estimate it based on the mileage records.  This is the only one you can estimate)
• registration, maintenance and insurance expenses
• the cost of tyres and batteries
• lease payments
• Depreciation (the maximum deduction for depreciation on a car is $60733)
• Interest on car loan
• Copies of the invoice and finance documents of any new vehicle
• Tolls and car parking expenses related to work

The cents per kilometre method pays you 78 cents per kilometre that you drive for work (in 2022-3).  This rate includes everything (that is maintenance, repair, fuel, rego and insurance etc.), so you cannot claim it again.

If you use the cents per kilometre method, you need to be able to show how you calculated your work-related kilometres and prove they were for work. You can claim up to 5000km using this method.  To record your driving for work you can use a logbook or myDeductions on the ATO app.

Vehicle expenses for a business

All vehicle expense records must be kept for 5 years.  Apart from this, there are different requirements depending on what type of business structure you have. 

Sole Trader & Partnership

Sole Trader & Partnership businesses can use the Cents per Kilometre, or the Logbook Method described above in the section for individuals. Unless you use a motorcycle, ute or minivan, in which case you use the actual cost method.  See below.

Company & Trust

A Company & Trust will use the actual cost method.  They cannot use logbook or cents per km.  The Company & Trust will need to keep receipts for all business-related motor vehicle expenses.

If the vehicle is also used for private purposes, records must be kept showing the portion of time it’s used for each purpose.

Depreciation (aka decline in value) on the vehicle can be claimed if using the actual costs method.

If the company is providing the car for an employee or shareholder there can be further tax implications such as fringe benefits tax.

Deductions for Seminars, Conferences and Training Courses 

The golden rules for claiming deductions relating to a seminar, conference or training course are:

• You must have spent the money yourself and not be reimbursed.
• You must have a record to prove it. Keep your receipts!
• You can only claim the work‑related portion of the expenses.
• The seminar, conference or training course will maintain or increase the knowledge, or skills you need to earn your income in your current employment

The costs you can claim include:

• fares to attend the venue where the seminar, conference or training course is held (e.g. taking a flight, driving your car, catching a train, taxi, or bus,)
• registration costs for the event
• accommodation and meals (if you need to travel and stay away from home overnight to attend the event)
•  the cost of an incidental component of attending the event e.g. a catered lunch for the participants, or a reception for delegates.

If you travel away from home for 6 or more nights in a row, you need to keep travel diary as well as keeping receipts.  It can be paper or electronic and must show your travel movements and activities including the date, location, what you were doing and the start and end time for the activities. 

If your expenses are partly private in nature you must apportion your expenses. 

Here are some helpful examples about apportioning expenses from the ATO.  https://www.ato.gov.au/uploadedFiles/Content/IAI/Downloads/Toolkits/TaxTimeToolkit_Travelexpenses.pdf

 Example 1 You take your partner or children away with you when you travel for work. You cannot claim the cost of any travel expenses you incur for them. For example, you pay for a two-bedroom apartment to accommodate your children, but you can only claim a deduction for the cost you would have incurred on a one-bedroom apartment had you travelled alone.

Example 2 You fly to Perth for a seven-day work conference and add on a return trip to Broome for four days. You can only claim: your flights to and from Perth and the accommodation, meals, and incidental expenses that you incurred during the seven days of work-related travel.

Example 3 You are in the process of booking a holiday to Sydney to see an art exhibition when your employer asks if you’d like to attend a three-day work-related conference in Sydney. Coincidently, this is to be held from the Monday following your planned holiday. You change your travel arrangements to include the additional time in Sydney. In total, you spend three days in Sydney for private purposes followed by three days at the conference. You apportion your flights for the private component of your trip (50%) and only claim the accommodation, meals, and incidental expenses you incur during the three days of work-related travel.

Example 4 You fly to London for a 10-day international, work-related conference. You stay over for an extra two days to do some sightseeing. You cannot claim the cost of accommodation and meals for your two days of private travel. But the private component of the trip is merely incidental, so you can claim the full cost of your airfares.

Example 5 You are holidaying in Cairns when you become aware of a work-related seminar which runs for half a day. You can claim the cost of attending the seminar, but you cannot claim your airfares to and from Cairns, or accommodation whilst in Cairns, as the primary purpose of the travel is private.[2]

Deductions for Self-Education

The self-education must either:

maintain or improve the specific skills or knowledge you need to perform your current employment activities

     or                      

result in (or be likely to result in) an increase in your income from your current employment activities.

In addition

• You must have spent the money yourself and not have been reimbursed
• You must have a record to prove it. Keep your receipts!
• You can only claim the study‑related portion of an expense (e.g. your computer may be for study use as well as private use.  You will need to work out how much you use it for study and how much you use it privately.  Then you can claim the study related portion the cost of your computer as a tax deduction.)

Course related expenses

• Course and tuition fees (including those payable under FEE HELP)
•  Textbooks
• Academic journals
• Student union fees
• Student services and amenities fees
• Equipment costing less than $300 e.g., printer, desk
• Computer or laptop
• Computer repairs
• Internet and data usage (excluding connection fees)
• Phone calls
• Postage
• Photocopying
• Stationery e.g. notebooks, pens, printer ink, paper

Home expenses

• Additional running expenses if you have a room set aside for self-education purposes
• Such as the cost of heating, cooling and lighting and cleaning that room while you are studying in it.  (Note that you cannot claim your mortgage, rent or council rates.) You can use the cents per hour method or the actual cost method to record these. If you’re not sure which method to use, your accountant can advise you.

Travel expenses

• Accommodation and meals if you are away from home for your study for one night or more
• Travel from home or work to your place of study – by car or public transport (note if your journey continues from place of education to work or home you cannot claim that part of the journey)
•  
• This includes car expenses such as fuel, repairs etc. You can claim using the cents per kilometre method or the logbook method.  If you’re not sure which method to use, your accountant can advise you.

Depreciation

• Decline in value of depreciating assets costing more than $300 e.g., printer, desk, office chair
• Computer upgrade

Loans

• Fees paid on some study loans
• Interest on a loan to pay tuition fees 
• Interest on money you borrow to buy a computer

Note: Prior to the 2022-23 tax year the first $250 of education expenses was not deductible, however this was abolished in the recent federal budget.

Self-education deductions can only be claimed if the course relates to your current employment.

You can't claim a deduction for self-education and study expenses that:

• don't have a sufficient connection to your current work activities
• only relate in a general way to your current employment
• you incur when you are not employed
• enable you to get new employment or change employment 

Here are some examples based on the questions that psychologists often ask me about self-education deductions:

Example 1 Cara

Cara is a psychologist working for a busy city clinic.  She has decided to continue to work full-time and to study part-time for a Master’s in Psychology.  As this is directly related to Cara’s current employment and it will improve her skills and earning capacity, she will be able to tax deduct her self-education expenses.  After the first three months, Cara realises that she’ll need more time to study.  She continues to work 2 days a week.  As she is still employed as a psychologist Cara can still claim a tax deduction her self-education expenses.  At the start of the second year of her Master's degree Cara decides to dedicate herself to study.  She stops working and studies full-time.  As Cara is no longer “improving the specific skills or knowledge she needs to perform her current employment activities”, she would not be entitled to claim her self-education expenses for the second year.  Note that this would also be the case if Cara were to work part-time in a different job, for example as a receptionist at the psychology firm. 

Example 2 Ian

Ian is a psychologist working in large hospital.  He becomes very interested in drug treatments for mental illnesses and decides to study medicine with the aim of becoming a psychiatrist.  Although psychiatry and psychology are both professions specialising in mental health, this course would not improve Ian’s skills or knowledge for his current employment.  His self-education expenses for his medical degree would not be tax deductable.

Example 3 Alicia

Alicia is a psychologist and one of the owners and directors of ABC Psychology Pty Ltd. Alicia decides to study for an MBA and ABC Psychology Pty Ltd will foot the bill. In this case Alicia is not paying for the studies herself so she cannot tax deduct the tuition costs of her self-education.  However, ABC Psychology Pty Ltd will be able to claim the deduction as training expenses.

If Alicia were paying for the course herself, she would be eligible to claim her self-education expenses connected with the MBA as a tax deduction because the MBA is connected with her current employment.

Example 4 Breana

Breana is a psychologist and one of the owners and directors of ABC Psychology Pty Ltd. She takes a self-development course which covers leadership, self-confidence, communication, and positivity.  Leadership is directly related to her current position as a director.  The other subjects. only relate in a general way to her current employment as a company director.  Breana can apportion and claim 25 % of the costs of she incurs taking the course. 

As always if you have any queries about tax, feel free to call or email me or a member of the Accountant for Psychologists Team.

Live long & prosper

Have a great month
Fairuz & the Accountant for Psychologists Team -
Sian, Sean, Olivia, Kristy, Sarah, John, Karen