What tax deductions can I claim?
Every year at tax time clients ask us about what sort of deductions can be claimed. There is real confusion around just what can and can’t be claimed and some stiff penalties if you get this wrong.
As a general rule, business expenditure is deductible; private or domestic expenditure is not.
When we give advice, we examine just what the dominant purpose of the expenditure was. The law demands that there is a link between the expenditure and earning income. This is referred to as the ‘nexus’ between income and expenditure. Or put another way, spending a buck to make a buck.
There is no statutory definition of what constitutes private expenditure so most of our understanding comes from case law.
What sort of things should you look out for?
1. Working Lunches – Be careful with ‘working lunches’. These are not deductible so don’t get in the habit on claiming your daily lunch. There is a case where the taxpayer argued that the company paid for their daily lunches to enable them to keep working. If they had to leave the premises, they would have to stop working. The court didn’t agree viewing the daily lunch as private in nature. Of course if you have lunch with with a customer and it is work related, the entertainment rules should allow a deduction of 50%.
2. Apparel and Appearance. Clothing, eyewear and footwear is very seldom deductible unless it is ‘specific’ and ‘peculiar’. There are a number of cases involving taxpayers claiming hair dressing, wrist watches, spectacles, hearing aid batteries, private medical expenses and child care costs. In every case, the taxpayers were unsuccessful as there was no nexus between the expenditure and generating income for the business. The items were not specific enough to their occupation and had an element of private benefit.
3. Travel – it’s not uncommon to travel around the country or overseas to attend a conference, to view potential capital assets or to purchase or sell property. It is not uncommon to mix a little business with pleasure and tack on a few days holiday at the end of such a trip. If the dominant purpose of the trip was for business, the expenditure on the airfares is almost certainly deductible. Accommodation a day either side of the conference is probably deductible as well. However, the accommodation and cocktails at the resort after the conference most certainly is not.
The one area where deductions are allowed is for uniforms. They are usually deductible as long as they have a unique logo or identifying mark.
There are some interesting examples in case law.
A GP was able to claim the cost of keeping guard dogs as he held drugs on his premises. He was able to claim 50% of the costs.
A self-employed model was able to claim a percentage of her grooming and clothing expenses as there was a close nexus to her income. Yet a barrister who tried to claim a black suit, high heels and white blouse as she wouldn’t wear this anywhere other than in court was unsuccessful.
This advice is general in nature. If you want a specific opinion you should contact us directly for a confidential discussion.
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