For those of you who attended our budget event, Rachel mentioned that handbags can now be claimed as a tax deduction. The Sydney Morning Herald has explained how you can justify this claim in the following article written by Melissa Browne.
How to Claim a Handbag as a Tax Deduction
Last month online magazine Financy caused a sensation among women when an article suggested we may be able to claim our handbags as tax deductions. The excitement died down a little when it was suggested a log book may need to be kept to prove complete deductibility of the bag, but I’m still certain stores will see a spike in female bag sales pre June 30.
What was interesting to me as a result of the article was two things. First, I think it’s fairly accepted that Australians are pretty excited and motivated by tax deductions. Second, it made me wonder how many people actually understood how much they stood to save by the purchase of their Prada and also what else they could potentially claim for.
So because I’m an accountant and these things excite me more than they should below is a breakdown of what it all means and what the outcome is for you at tax time.
What sort of bag
If I think I can claim my soft-sided, smaller handbag that tucks under my arm and doesn’t fit a whole lot in I’m probably going to be disappointed. That’s because we’re arguing the handbag is being used for work-related purposes. That means it essentially has to fulfil the same purpose and function as a briefcase or satchel. If instead, like me, when you purchased your handbag you took your laptop to make sure it had compartments that would hold it, you’re closer to being able to argue a tax deduction.
What sort of use
The trend to carry two bags caught on a couple of years ago – the smaller bag to carry your wallet, lip gloss and keys and the second to carry your bulkier bits and bobs. This is where you have a much clearer claim with the Tax Office. If you have a small everyday bag for work and a larger bag used solely to carry your laptop, files and so on then the Tax Office is going to be much more comfortable with your argument that the second bag is being used purely as a work bag. In my case this second bag is a sturdier, more upright handbag that will easily carry my 17-inch laptop, mini iPad, pens, business cards and client files.
Of course, if you don’t love the idea of two bags then you have other options. One is to have a weekday work bag purchased for its ability to carry your laptop that you use for work only and separate weekend and weeknight bags that are used apart from work.
How to justify your claim
Sure, you could simply argue that your work bag is necessary but it’s always preferable to be able to do more than debate your point verbally. The Tax Office loves documentation and in order to support your claim it would be preferable to keep a log book for at least a month to prove usage. If you genuinely have two bags you may be able to document this with photo evidence proving the usage but if you don’t and you’re arguing that the one bag fits all then you may need a log book to prove it.
What you get back
This is the important bit right? It’s also where it becomes a little complicated. If you’re an employee and you find a bag costing less than $300 you can claim an immediate deduction for the work-related bag to the percentage you’re using it for work. For many taxpayers this means a tax saving of approximately $100 in the tax year you purchased the bag if you can argue it’s 100 per cent business use. If your bag costs more than $300 you’ll need to depreciate the bag over a number of years which means your claim is stretched out and so is the tax saving.
For the self-employed it’s much easier and if you’re registered for GST you’ll receive a dual saving. First you’ll receive a credit for the GST component and if you’re a small business with a turnover of less than $2 million and the bag cost less than $20,000 you can claim the entire amount as a deduction in the tax year in which you bought it. So for a bag costing $1100 you could receive up to $100 back in GST and if you’re in the middle tax bracket you’ll save approximately $300 in tax.
I’m not a fan of spending to receive a tax deduction but if you’re going to buy something anyway you may as well be smart about whether it can become one. Other lesser-known deductions include sunglasses, make-up and moisturiser. Most people would argue these are private items but if you’re a sales rep, own your own business and are in the car a lot, a junior and spend half your day running around outside, or a teacher and spend a good part of your day at assemblies or on play ground duty then all of these may become deductible. How? Through the sun protection claim, which means of course that your moisturiser and foundation must have an SPF factor in them.
Now before you ask if you can claim suits, shoes and work-wear the answer is probably no. The line has to be drawn somewhere. However, by understanding more of what the Tax Office is looking for in a claim, you can make decisions when you’re buying items to ensure you’re maximising your refunds at tax time. Now if only I could find a steel-capped pump with a five inch heel …