An article appeared on Yahoo Finance ATO reveals its hitlist last month warning business owners that the ATO is changing the way they monitor small tax returns by focusing on specific claim types instead of professions in their audits.
The article said:
“This will put tech expenses for computers, phones and other devices, as well as travel expenses under the microscope.”
“While the ATO has previously focused on particular industries that might be fudging their deductions, the taxman this year will crack down on the actual expenses that individuals are claiming against their taxable income. ”
“The ATO’s priorities this year are:
This affects all small businesses but I wrote about it because these focus areas all affect video production businesses directly. Whether you are a freelance videographer or a full-service video production company, you will have expenses for all three of the above priorities.
In talking to many industry friends, more than one mentioned that they would “buy all their toys” before the end of the financial year to help reduce their tax. If this is you, I’m sorry, but you will now need to be extra careful about how you claim these items.
The biggest mistake that small business make is proving that the expenses are work related. For example, you may purchase a new camera, and start using it for your shoots, but how do you prove that this camera is for work, and not for personal use? Particularly since some of the cameras available today like the Blackmagic Pocket Cinema Camara and the Panasonic GH4 are under $2,000, much like many consumer level DSLRs. If you buy a new Mac Book Pro… how do you prove how much time you spend editing and business admin rather than watching cat videos?
“If taxpayers are claiming work-related expense deductions, they must have spent the money, they must be related to their job and they must have a record to prove it” says the ATO.
“When completing your tax return, you’re entitled to claim deductions for some expenses that are directly related to earning your income,” the ATO website states. “The expense must not be a private, domestic or capital expense. If the expense was both work-related and private or domestic, you can only claim a deduction for the work-related portion.”
There any many different methods out there but there are two that I use which my accountant has recommended to me.
Note: I am not a lawyer or accountant and you should seek your own advice.
The first method is simple; keep a log book. In the same way that you log the personal and work related car trips in a log book, do the same thing with your camera and computer. Try to avoid making it 100% work related, if you know that it is shared use, as in an audit, this will come up. For example, I use my phone bill as a log of how much I use my phone for personal use and business use. If you do this as a part of your weekly book-keeping of 13 weeks, I believe, this will provide adequate proof the work related expense.
The second method is capital depreciation. If you claim your camera as a tool of trade and claim the depreciation of the capital expense on your business tax supplement, this will rarely cause red flags. If I am claiming a handset or computer in this method, I also keep a log book and only claim the depreciation on the percentage used for work expenses.
In summary, I am not an accountant so please, seek your own advice but my fellow film-fanatics… ignorance is not a defence. It may seem irritating to keep a log-book and keep a close eye on your book-keeping but at the end of the year, it’s far less irritating then an audit.
What methods do you use to distinguish personal and professional use of assets?
Image credit: http://www.afr.com/p/national/ato_widens_probe_on_punters_club_oXDlDImKbei3h5tLFceL2M