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What you can claim back on tax in 2021 if you are self-employed, a freelancer or a contractor

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If you are a contractor, freelancer or sole trader, your tax and superannuation obligations are not as straightforward as a typical PAYG employee. With the end of the financial year fast approaching, knowing what to do with your tax return as a self-employed worker is important.

In this article, we’ll outline what you can claim back on tax this financial year.

What counts as self-employment?

All self-employed workers must have an Australian Business Number (ABN). There are a few main types of self-employed workers:

  • Sole traders: own and run their own business and choose when, where, how and who they work for
  • Independent contractors: these workers are engaged for a specific task at an agreed price with a particular outcome in mind, usually over a set time period
  • Freelancers: similar to a contractor, however their work schedule may be more flexible and their jobs typically shorter in length

Tax for self-employed workers

If you’re a freelancer, sole trader or independent contractor, your tax works a little differently from the typical PAYG employee whose tax is automatically deducted from their pay by their employer. Instead you’ll need to put aside a portion of your pay as tax so that when it comes to the end of the financial year, you can meet your tax obligations to the Australian Taxation Office (ATO).

Self-employed workers, even if they are a sole trader running their own business, only have to lodge a personal income tax return. In your tax return, you will need to use the section for business items to show any business income and expenses, if this is the case for you.

For more information on tax returns for self-employed workers, visit the ATO website.

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As a freelancer or contractor, what can you claim on tax this year?

Self-employed workers are entitled to claim most of the usual work-related deductions that employees can to lower their taxable income and subsequently lessen the amount of tax they pay. You must not have been reimbursed for any of these expenses, they must directly relate to earning your income, and you must have a receipt to prove them.

A handy way to keep track of your deductions throughout the year is to use the ATO’s myDeductions phone app, which allows you to upload photos of receipts for deductions you’ll want to claim at tax time.

What vehicle and travel expenses can I claim?

For travel expenses, you can’t usually claim the cost of driving between your home and your place of work. However, you can claim travel if you visit multiple work sites in a day, for example, which may be the case for contractors and freelancers.

This travel can be via your own car, ride-sharing services like Uber, public transport or aeroplane. Just make sure you have receipts to prove it!

What clothing, laundry and dry-cleaning expenses can I claim?

For freelancers and contractors, clothing expenses may include buying occupation-specific or protective clothing, like if you are a trades contractor who needs a hard hat and steel-capped boots.

Also, if you need to clean any of your occupation-specific or protective gear, you can claim this cost as long as you have a record.

What home office expenses can I claim?

This category is important for self-employed workers as many freelancers and independent contractors work from home.

You can claim things like running expenses for electricity and gas, the decline in value of equipment like computers and office furniture, and sometimes even occupancy expenses like rent or mortgage payments if you are considered a business.

How to calculate and prove your home office expenses

There are a few ways to calculate and prove your home office expenses: the shortcut method, the fixed rate method and the actual cost method.

The shortcut method allows you to claim 80 cents for each hour you’ve worked from home, and it covers running expenses like electricity, and your phone and internet. You don’t need to have a dedicated work area to use this method.

The fixed rate method allows you to claim 52 cents per hour of working home, and covers your additional running expenses too. It typically allows you to claim greater deductions because you can claim for expenses like internet, stationery and decline in equipment value on top of the 52 cents per hour. However, you must have a dedicated work area to use this method.

Lastly, the actual cost method means you claim a deduction for the actual cost of working from home, rather than using a flat rate per hour, and covers additional running expenses also. It requires detailed record keeping, but can be beneficial for people with high expenses.

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What work tools and equipment can I claim?

If you work for yourself and require certain equipment or assets, like power tools, to do so, you may be able to claim the depreciation in value of these expenses on your tax return.

This also includes equipment like a computer that you may use for both work and private purposes. When it comes to your tax return, you can only claim the work portion of the equipment. Again, you need to have receipts for any tools or equipment you want to claim.

Are there any other expenses I can claim?

Other deductions that self-employed people could claim include:

  • Union fees
  • Seminars and conferences
  • Premiums paid for income insurance

What other personal tax deductions can you claim this year?

Other deductions that are not work-related include:

  • Cost of managing tax affairs (i.e. your tax accountant)
  • Gifts (money or property) to a deductible gift recipient and charitable donations
  • Personal super contributions
  • Interest charged by the Australian Tax Office (ATO)
  • Expenses incurred in earning interest, dividends and other investment income
  • Undeducted purchase price of a foreign pension or annuity

Can you claim deductions for personal super contributions?

You may have noticed personal super contributions in the above list of other deductions that are not work-related.

Since self-employed workers do not have an employer to make compulsory super contributions on their behalf, self-employed workers must make super contributions themselves if they want to save up super for their retirement.

So, if self-employed workers make personal super contributions, they are able to claim these as deductions on their tax return, meaning this lowers their taxable income.

For more information on claiming deductions for personal super contributions, visit the ATO website.

Even though doing your tax return as a self-employed person can seem daunting, it doesn’t have to be. Speak with a tax agent or accountant if you have further questions about lodging your tax return as a self-employed worker.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

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