The scene is the same every year, despite making a promise to be better organised; you find yourself dashing from room to room, looking into drawers and folders for receipts. Why are you even doing this? Your accountant and the tax agency never requests for them anyway, right? Well, a reputable accountant will always ask their clients to substantiate their expenses. In addition, if you ever become unlucky enough to be audited by the tax office, you’d wish that you kept those receipts.
So, what records do you have to keep? Don’t throw away records showing work-related work spending, car costs, and work-related travel spending. You are obligated to hold on to them for five years.
What are work- or business-related costs? These are outgoings you incur in generating your business income or wages.
Here are records you need to keep:
Receipts and other written substantiation
The following must be found in the receipts:
- The supplier’s name or business
- The amount of the expense (shown in the currency of the country where it was incurred)
- The type of the products or services
- The date it was purchased
- The date the receipt was created
- Information about the GST charged
List of secondary costs
Cost per item should be $10 or less, and as much as $200 all in all. A diary or logbook should be used to record the expenses. Include the date you made the entry. No need to sign entries in the logbook.
Business or work use percentage
If you use a product or service for both business and personal purposes, the deduction you can claim is the portion used for work or business. This means you need to come up with a business use percentage, then pro rata the expenses. You can only claim the business usage percentage, not the personal usage percentage.
Motor vehicle expenses
Vehicle expenses can be claimed in four ways:
- Log book
- Set rate for each km
- One-third of expenses
- 12 per cent cost of the vehicle
The number of kilometres you travel for work or business determines the method you can use. Also, you have to satisfy the record keeping conditions for the method you use. For instance, for the log book method, you have to keep the log book itself for a minimum of 12 representative weeks to compute the business use percentage. The log book is valid for five years. In addition, you have to have receipts to prove all car maintenance costs.
For the set rate per kilometre method, the claim that you can make is limited to 5,000 kilometres. Keeping records of the car maintenance costs is not needed. However, you have to be able to prove that the car travel was made for income generating purposes.
You can use the one-third of actual expenses method if you travel over 5,000 kilometres. However, you have to maintain all records of car maintenance costs.
The 12% of the original cost method is also appropriate when you travel over 5,000 kilometres. You don’t have to record the running costs of the vehicle, but you have to prove that the car travel was made for income generating purposes.
Domestic or international travel
If you travel for over 5 nights, keep a diary and include the following details:
- The type of activity
- The date and time the activity happened
- The length of time of the activity
- The location where the activity happened
The $300 cap for employees
You don’t have to provide written evidence if the overall sum of employment related work spending is $300 or less. However, claims for travel allowance expenses and food allowance expenses are not included.
The following claims are excluded:
- Taxi fares or similar expenses
- Car expenses in respect of overseas travel
- Phone, computer and internet expenses (pro rated based on employment related use)
- Laundry expenses (You can claim up to $150 without written evidence.)
- Depreciation of property owned and used (or installed and ready for use)
- Home office (You can claim 45 cents per hour worked.)
The $300 cap excludes:
- Travel allowance expenses
- Reasonable overtime meal allowance expenses
- Car expenses in Australia
- Award transport expenses
The employee has to produce written evidence to get these claims.
If you file claims of over $300 in business related deductions, you have to substantiate all expenses with a receipt. If you can’t present the receipt if asked by the tax office, you will not be allowed to claim the deductions.
Enlist the help of professionals to help you on your tax affairs. PJS Accountants provides a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning and bookkeeping. For enquiries, contact PJS Accountants.