Dog food, Xboxes and make-up for dead people are just some of the bizarre claims the ATO will allow – if you have the supporting records and a solid business reason for incurring the expense.
With not long until the end of the tax year, small-business owners are turning their minds to deductions – what’s allowable and what’s not.
Here are 8 bizarre tax deductions:
* Art Works
* Backyard Studios
* Food and Wine
* Your Dog
* Sunscreen, Hats and Sunglasses
* Knives and Pedicures
Art gallery owners have rushed to persuade small business owners to buy artworks since the $20,000 depreciation concession was introduced. The good news is that paintings and the like are allowable deductions. But paintings are deductible only if they’re used to decorate the business.
Business owners have got to be careful to ensure that it is artwork in the business premises and doesn’t find its way into the personal premises, and have a private domestic use – WARNING – If you have a home office don’t be buying it for display there!
With the rise in popularity of home based businesses, many taxpayers are buying prefabricated studios to put in their backyards and deducting them from their tax. These often cost less than $20,000 so are eligible for the depreciation concession, though they can also cost a lot more.
If you did have your business operating from home, you could shift it into the back yard as opposed to the lounge room or the study – but buyers have to be cautious that the studios aren’t more like granny flats, with a bathroom and bedroom.
If it’s gone too far towards being a flat then there’s a high risk that the tax office could come in and deny the deduction!
FOOD AND WINE
Small-business owners can deduct the cost of their meals and alcohol when they’re travelling for work and stay away overnight, as long as you keep the receipts and invoices! There’s no particular distance that business owners have to travel away from home to claim the deductions – it just needs to be impractical to get home. A rough guide of 100 kilometres from home would be considered reasonable. Claims for wine/beer they provide as gifts to customers too can be made!
If you have a guard dog, you can deduct its food and vet bills. It’s the same principle as cattle dogs for farmers that are working animals – you might even take the dog home at the weekends to be with your family.
But the dog can’t just be a family pet. And sorry – there’s no such thing as a guard cat!
SUNSCREEN, HATS AND SUNGLASSES
Business owners, who work outdoors, such as gardeners or builders, can get a tax deduction for sunscreen, hats and sunglasses. These deductions were allowed only after court challenges to the ATO by outdoor workers – they were able to show that there’s a sufficient nexus with work!
As long as there is a clear connection between incurring the expense and earning assessable income in your business or employment then, generally, the deduction will be allowed.
The Australian Tax Office has recently confirmed that small businesses would be able to deduct ping-pong tables if used in the business but a whole range of employee entertainment expenses are deductible.
The workplace has changed dramatically over the past few years, so things like Segways, Dart boards, Xboxes and Foxtel subscriptions are allowable as a means of getting people refocused and giving them a bit of downtime in the workplace. The good news is that the Tax Office has acknowledged this!
KNIVES AND PEDICURES
The general principle with tax deductions is that the item is allowable as long as the expense is incurred in earning assessable income – you may need to defend it at some point of time, but if you can justify the expense then the answer is you would probably get it across the line!
This opens the way for deductions that might at first sight seem unusual, but make sense in context. A knife swallower would be able to deduct their knives and a hand model could deduct the cost of pedicures.
For example, if an executive assistant tried to claim make-up, colours and brushes, they wouldn’t be able to. But if you’re preparing deceased bodies for a funeral service then of
course all those sorts of things would be deductible!
Ladies, you may also be able to claim a deduction for assets that are predominantly used for work purposes, such as bags and satchels used to carry work papers or electronic devices, to the extent that such items are used for work purposes.
But …………… like a briefcase, if it is primarily used to carry lunch and other personal items to work it is being used in a similar way to an everyday handbag and no deduction for its cost would be available!
Keep a record of the work use of a handbag, ideally by using a logbook/diary for a period of about three months, in the event that the ATO decides to audit.
Basically, if you are carrying work items to and from work, be that a laptop, work papers and minor personal items, then you are in a position to claim a reasonable deduction for the cost of a handbag or “manbag”!
My strangest tax claim
When I was working in Melbourne, a customer operating in the adult entertainment industry had some legitimate tax deductions for some bizarre items that I had never seen used like that!
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