Claiming on tools of the trade.?

Question

I was just wondering how much we can claim for tools of the trade. My partner is a carpenter and he was told the other day they he can claim back 100% of the price of the tool and that will come off his tax bill is this correct it doesn't seem right to me.

Answer 1

You are right to be suss of what your friend says. The tax office doesn't entirely reimburse your expenses (that would be a dumb government revenue policy).

Deductions for business/work related expenses just offset your assessable income so that you have a lower taxable income. The lower your taxable income, the less tax you pay on your taxable income. In basic speak - for every dollar that you spend on a deductible expense you will save roughly 30c on income tax if your taxable income falls in the 30% tax bracket.

So if the tool costs $100 you might save $30 worth of tax on your income. But you are still out of pocket for $70. So spend wisely before 30th June... don't just listen to mates and sales people who say "you'll get it back".

He might be getting "100% claimable" mixed up with "100% business use - therefore 100% deductible against income". If the tool was used 50% for a private hobby (not an income earning activity), then only 50% of the cost of the tool could be claimed as a deduction against assessable income in the tax return, for example.

Answer 2

When you claim equipment on your tax return the total amount reduces your assessable income, once you have taken off all your deductions from your assessable income you are left with your taxable income. This is the amount that is used to work out how much tax you must pay. exa. Your partner earns $40,000 in wages, he bought tools totaling $1000, his taxable income is $39,000. He will need to pay tax on $39,000.

You should also know that if individual tools cost over $300 they must be depreciated which means a potion of them get claimed each year. If the individual tools cost over $300 and less than $1000 they can be added to a low value pool which depreciates them all at the same rate and is not based on when you bought the tools. There are some advantages and disadvantages to a low value pool so talk to your accountant before doing this.