By Max Newnham
There is often a misconception that when someone starts a business they can deduct a lot more expenses than when they were an employee. Nothing could be further from the truth. For any amount to be deductible there must be a link between the expense and the income earned. There are however some items, where a link exists, that are regarded as private and still not tax-deductible.
One of the best examples of this latter type of expense is business clothing and suits. Because everyone must wear clothes, unless they are employed in an active role in a nudist colony, there are very strict limitations on claiming clothing as a tax deduction.
Unless the clothing is very distinctive to a particular profession, such as the checkered trousers that chefs wear, a deduction for replacing and maintaining is limited to distinctive uniforms. For it to be distinctive it must have a logo that identifies who the person works for, and it must be compulsory that the uniform is worn.
When it comes to claiming car expenses the same rules apply to employees and business owners. Unless home is also a place of business, in most circumstances driving from it to a place where the income is earned is regarded as private non-deductible travel.
A common exception to this rule is when a large quantity of tools or other materials must be carried in the vehicle, this travel can be regarded as tax deductible business travel. An independent consultant working from home, that drives to the location of multiple clients of the business, is likely to have this regarded as tax-deductible business travel.
Q. I am a consultant and have to drive from my home 100 kilometres round trip to one of the places I work and 20 kilometres round trip to another location. My employer is willing to reimburse me for expenses but is debating which is the correct way to proceed. Should he reimburse me based on the cents per kilometre method or have me keep a logbook to work out the business use?
A. The first thing to establish is whether you are really an employee or independent contractor. For you to be a contractor you must supply all of your own equipment, must be engaged to complete a particular task or job, and be responsible personally for fixing any mistakes made.
If you are only consulting to one business with two different locations, and are driving from home to each of those locations, that travel would be regarded as private and not tax-deductible. Travel between the two different locations would be regarded as business tax-deductible travel.
You then have the choice, once having established what travel is business tax-deductible, of either using the cents per kilometre method or the logbook method.
From your question it does not appear that you are worried about getting a tax deduction, but how your employer reimburses you for the travel. In this case tax principles don’t apply and comes down to whatever can be agreed between you and them.
Source: The Age
