Claiming Deductions

[Bicky]

I have a complicated-ish tax return this year as I just started as a sole trader, just finished uni receiving some centrelink benefits, and also worked under an employer throughout uni. I earned less than $1000 under my own ABN this year, but a lot more under an employer making a total tax bill of around $1800. I want to claim my tools, a computer worth roughly a bit more than what I earned as a sole trader. Because of the value I can legally claim it as either a standalone deduction or I can claim depreciation over 5 years.

• I am thinking it makes more sense to claim 'depreciation' as I believe I can only claim against the portion of my income which the computer affects (ie. less than the value of the computer). is this correct?

• and if so, is this as simple as dividing the cost by 5 and including it as a deduction over 5 years?

I am trying to deduct as much as possible this year, as my main employer underpaid my tax withheld substantially so I could be up for around $800. As someone straight out of full-time uni supporting themselves for the first 4 years of it, I don't have a lot of loose cash to pay that.

 

[Visions]

Someone might be able to correct me, but even if you make a loss for the financial year by deducting expenses from your sole traders income, you cannot offset that loss against your PAYG income because of the low sole trader income. There is a minimum turnover amount you need to meet before you can offset it.

 

[Bicky]

Yeah that makes sense, and is why I thought I would just claim depreciation (so I could deduct the whole amount over 5 years). but realistically this is the year I need to deduct as much as possible, so I can probably just basically 'cancel out' any tax that would be due on my ABN income even if I can't deduct the whole value of the computer.

 

[DrParrot]

You need to have $20k gross income under the ABN to claim any losses made by the business, there are 3 other tests too but its unlikely you will pass any of them. Profit 3 out of 5 years, assets over $500k and something else lol

However you can claim deductions against this income still... so if you have $1,000 income and deductions against the business income of $800 you only pay tax on the $200 part.

The loss would work like so $1,000 income $1,200 deductions -$0 income for this year and loss of $200 carried forward to a year when you are eligible to claim it (by meeting one of the tests above)

For the depreciation you can claim it straight line (as you detailed above) or Diminishing value, which gives you a bigger deduction upfront... if your using etax it does the calculation for you. Also Last i checked Computers were depreciated over 3 years rather then 5... so better still.

If you want any more info feel free to ask... in Europe but checking bigfooty every day or two.

 

[DrParrot]

Also you will be eligible for the Entrepreneurs tax offset, which will mean you pay less tax then normal on your income. So any deductions you can reasonably claim as being against your employer income you should try and do.

http://www.ato.gov.au/content/00149627.htm

 

[Bicky]

Thanks. That is almost exactly what I needed to know. (The ATO website is hard to find out a lot of that stuff) I was aware of the ETO but it probably won't have much effect if I bring my business income down to near 0, since I can't claim this deduction on my PAYG income. I doubt I'll have $500k worth of business assets anytime in the next few years too, since I'm working from home. By the time I do, a loss of a few hundred dollars to carry over won't really matter.

 

[DrParrot]

Thanks. That is almost exactly what I needed to know. (The ATO website is hard to find out a lot of that stuff) I was aware of the ETO but it probably won't have much effect if I bring my business income down to near 0, since I can't claim this deduction on my PAYG income. I doubt I'll have $500k worth of business assets anytime in the next few years too, since I'm working from home. By the time I do, a loss of a few hundred dollars to carry over won't really matter.

Had slightly mislead,the final two tests are $100,000 business assets or $500,000 real property assets. More info can be found at link below. And yep the ATO website is not the most friendly to find stuff on, a lot of this stuff i have looked up before so know where im going.

http://www.ato.gov.au/businesses/content.aspx?doc=/content/00268103.htm&page=2&H2