Tax Tales & Fails: The Tradie Edition

Ange
Well, as a trade business owner, you’re probably really great at your trade. But I’ll hedge a bet that doing business taxes is probably not your favorite part of the job. Am I right? 

Andy
Duh! Of course it certainly wasn’t mine, that is for sure. And in the beginning of building our plumbing business, even looking at the business finances any time of the year was far from my favorite job. However, I learned pretty quickly that the guys who were successful were the ones that had their business finances, and that includes all of their tax obligations, lined up properly. So I had to get my head wrapped around all this stuff.

Ange
Well, tax is something we’re all obligated to pay. And I see it like this. Paying tax on profit means you are making money. So that’s got to be a good thing. 

Andy
Yeah, that’s true. But once you’ve got your head around business taxes, you will feel a lot more confident and less stressed about your future and where you’re going. 

Ange
And Andy, we’re also going to play a little game today called the Tax Man. 

Andy
Okay. That sounds very interesting. Anytime we can make taxes fun is probably a good thing. 

Ange
All right. So totally the words taxes and fun are not often used in the same sentences, but we aim to please. 

Andy
So let’s get on with the show. 

You’re listening to The Tradie Show. This is the podcast for trade business and contracting bosses like you, who want to lead with confidence, make more profit and create a better lifestyle.

Ange
We’re your hosts, Andy and Angela Smith, husband & wife team and co-founders of Lifestyle Tradie. Are you ready to have some fun?

Andy
Hell yeah! 

Are you ready to take your trade business to the next level? Imagine transforming your business in just one day. At Lifestyle Tradie on Tour, we understand that being a great tradie isn’t just about the tools you use, it’s about the business you build. Join us for a power packed day where you’ll discover systems to set your business on autopilot, financial strategies to boost your bottom line, marketing tactics that fill your months, and much, much more. This isn’t just another business seminar. It’s a day of learning for real tradies ready to grow their business and improve their life. One day can change everything. Are you ready? Spaces are limited. So secure your spot today and join us at Lifestyle Tradie on Tour. It’s time to build the business and life that you deserve. 

Ange
So before we get into the common mistakes that tradies make and our tax man game, I want you to know that the information in today’s show is general in nature. We’re shared our thoughts on the topic of tax and finance for more than 20 years in the trade industry. But for financial advice for your specific business, you should seek the advice of a qualified and licensed accountant.

Andy
Righto. So I think the first mistake that is really glaring in all of our faces and it can be super easily fixed is the average tradie never puts money aside for tax. Now, before I get into how concerning this is and the possible flow on effects this can have in your business. I want to point out a few foundational things about tax first.

Ange
Well, I’m actually glad you’re starting here actually because I think this is really important. Not understanding some of the foundations of tax in general can get such a lot of guys in hot water. 

Andy
Exactly. So there’s different taxes here in Australia and obviously you’ve got the 10 percent GST and, and that’s goods and services tax and this is money owed to the Australian Tax Office or ATO. You know, you’re collecting this GST from each customer on behalf of the ATO and that you then need to pass on to them and it’s definitely not your money to spend. 

Ange
So the golden rule in your business should be that as soon as any of that 10 percent GST comes into your bank account, It should go into a holding account to be paid to the ATO, either monthly or quarterly. Well, that’s our view anyway. 

Andy
Oh, a hundred percent it should, because I’d go as far as saying you should have that GST account in a totally different bank. Because it can be so easily accessible and very tempting if you’ve got it in the same bank in another account, because you’re constantly looking at it. And you’re looking at these big fat bank balances increasing. And most tradies, we see it as money and it’s ours now and you just want to dip into it. 

Ange
Yeah, it’s probably better to have that money out of sight and out of mind. When you treat that money like it’s yours, you look at your bank account and all of a sudden there’s actually a false sense of security because it’s 10 percent higher than it should be. 

Andy
And over a long time, sometimes that’s 10, 20, 30, like it really ramps up and it could be a massive amount. 

Ange
Yeah, that’s true. And then it’s too easy to make these bad business decisions like buying that new piece of equipment based on what you saw in the bank account. Guys, truthfully, don’t get caught trading the ATO’s money like your own personal bank. It’s just going to get you in hot water. 

Andy
Yeah, we’ve had a few guys say. I’ll pay that tax later when this big job comes in, but then they’re chasing payments all while the deadline to pay that tax bill is looming closer and closer every day.

Ange
Exactly, and then you get stuck in this cycle of robbing Peter to pay Paul when all of this could have actually been avoided by having systems in place to stop you dipping into tax money that was never yours to touch in the first place. 

Andy
And yes, there’s a lot of bigger implications as well. You know, failing to set aside the GST and not being able to pay it on time can lead to your business being charged interest and also being penalized, which just adds to your financial strain and you know what your own personal stress and who needs that.

Ange
And look, if it continues, it could actually lead to the ATO doing audits and in severe cases, legal action.

Andy
So as we said, the solution to this mistake is this. Whenever GST is collected, immediately transfer the right amount of money into a separate account or a separate bank. This ensures the funds are always available when GST payments are due.

Ange
And you know what, Crew? You might be sitting there thinking, that just seems so obvious, and strangely it is, but we are surprised at the number of trade business owners who we still continue to speak with who are getting themselves in hot water over this very simple thing that could solve the problem. But there is another solution and that’s having a bookkeeper, a good bookkeeper is worth their weight in gold. 

Andy
Well, a good bookkeeper can well and truly keep you out of the sh*t and that’s the main thing here. 

Ange
Let’s call them a great bookkeeper then. 

Andy
An incredible bookkeeper. 

Ange
However, many trade bosses try to do the books themselves to save them time and money. And you know what? I absolutely get it. But unless you have a background in bookkeeping, which I will argue you do not, then let a professional take care of it for you. 

Andy
Yeah. We’re a real fan of having a top quality bookkeeper because they’re way faster than you anyway, they’re qualified, which means you both save time and money using someone else.

Ange
Yeah. And the biggest part about this is actually having your chart of accounts set up the right way in the first place, because otherwise what you’re even reporting is complete rubbish. 

Andy
Actually, Ange, can you explain that a little bit because we’ve had some tradies come to us and they’ve got no idea what that even means.

Ange
Yeah. Okay. Fair. I’m referring to the way your accounting software is set up to track all your finances. So the chart of accounts is the line items that make up your profit and loss statement. You know what? Basically, it reports your money coming in, captured as revenue and money going out, which is captured in either cost of goods sold or your expenses. And it’s important because this is the information source to complete your BAS and PAYG documentation. It’s all in your financial package and you’re going to want to know what your reporting is right. 

Andy
Yeah. And our recommendation is to outsource the sh*t out of this baby, because I’m pretty sure I’m starting to sound like a broken record here Ange, and I know I say it so often, but if bookkeeping is not your genius zone, you shouldn’t actually be doing it at all. I don’t care how much money you think you’re saving. And the reason I harp on this is because I see the after effects on a business when the bookkeeping isn’t being done right. 

Ange
Well, let’s be honest. You are way better at working on the tools. If that’s your gig with billable time, making money at your rate, call it a hundred, $200 an hour and leave the bookkeeping to someone you pay $80 an hour, for instance, or whatever it is you’ve negotiated. 

Andy
Breaching  to the converted Ange. 

Ange
True. So, Andy, I know you’ve just had a call with a guy who’s in a bit of trouble right now because of his bookkeeping and accounting. Can you share a little bit about that situation? Because I actually think it will help if people hear someone else’s story.

Andy
Yeah, look, I think the reality is that sometimes these guys have dug themselves into a hole, sometimes not a little hole, a massive hole, but they actually don’t see it from the very beginning. And, this recent guy had over a hundred thousand dollars owed to the tax, um, department, but he didn’t disclose that to me at the very beginning. And it wasn’t until we started going through and helping him with his finances. And I asked some specific questions like, What’s the problem here and here and their response was so matter of fact, and it was just like, Oh yeah, and we’ve got a tax debt. I’m like, well, how big? And it was well over a hundred grand. I was like, wow, how do you get yourself in that position? So when I asked what happened, he said, well, I had a bad bookkeeper. I had a bad accountant. I had a bad this, I had a bad that. Now I just want every trade business owner to be listening to me right now. Sometimes we use it as an excuse. We blame, it’s easier to blame someone else than ourselves. Now, I really believe though, as a business owner, You need to be getting your reporting every month and it needs to be the right reporting. So if you don’t have a bookkeeper that’s good at doing that, or if you don’t have an accountant that you’re catching up with three or four times a year and going over everything, is that the accountant’s fault? Is that the bookkeeper’s fault? Or is that your fault? And if you’re not giving the right information to the bookkeeper, how can they even keep your books up to date? And this is the thing that I hear most tradies, and I reckon everyone out there’s heard a story of the bad bookkeeper, the bad accountant, the bad this, the bad, and guess what? There probably are some bad ones out there. But the fact of the matter is this, you turn it into a blame game. You stick your head in the sand and you say, it’s not my job. It’s not my job. That’s my bookkeeper’s  job. And that’s my accountant’s job. And then before you know it, you’re in this massive hole and you’re like, how the hell did that happen?

Ange
You’re right, Andy, because tradies think accountant sorted, tick. But then they only engage their accountant at the end of a financial year so they can close off their year. And it’s actually too late for the accountant to have raised any alarm bells. The bookkeeper is the one that should be saying to you every month, this is the situation, this is where you’re at, and this is how much tax you owe. But because most tradies don’t have a bookkeeper every month, or they’re doing it themselves, or their partners are doing it, no one’s keeping track of the data properly. 

Andy
And that’s because they haven’t got their foundations of their business set up the right way. And a lot of the time they’re not reporting the right stuff. They’re not invoicing on time. They’re not keeping up with their financial entries and keeping them clean. And then all of a sudden they’re living in this false economy of, I’ve got 50 grand in my bank account. Shit, things are going really well for me. There’s money in my account. So I bought that shiny new piece of equipment. And then it’s like. Oh my God, I forgot. I had to pay Bass last month. I didn’t even know that. Actually, I owe 45 grand Bass. How am I even going to pay wages each week? I hear this stuff so often. 

Ange
And there lies a massive problem. As a business owner, you’ve got to put your hand up and say, I can’t blame the accountant and I can’t blame the bookkeeper. I’m the business owner. This is my fault and I need to take responsibility. 

Andy
A hundred percent. The bookkeeper or the accountant’s job is to ensure that the foundations of your finances are right and that all the required data is entered and finalized before the 10th of the month for the month that has just passed. And that way, all of the reporting you review at this point is, guess what? Correct. And hence, all the tax you pay is, guess what? Correct.  

Ange
This could actually be a serious wake up call for you right now. And you know what? We don’t say this to be harsh, but because we truthfully want you to succeed and not go through any unnecessary pain.

Andy
Now, moving on from that little rant a little bit and, and another regular payment that you need to make sure you’re paying is your P A Y G or pay as you go tax and this is the money you pay to the ATO after having withheld it from your employees wage payments and that includes yourself if you’re an employee of the business.

Ange
Well, it’s basically helping each employee meet their personal tax obligations. And as a trade business owner, you also can’t forget about things like your superannuation for your team. You might end up with company payroll tax and of course, workers compensation too. 

Andy
Tax! Tax! Tax! Tax! There’s more bloody tax! I hate tax!  But you know what, Ange? All of that is important. And I think the tax that gets most trade business owners unstuck is the tax paid at the end of the financial year on the profit that they have made in the business. 

Ange
Well, it’s only paid, if you have a business as a company structure. So if you’re a sole trader, it’s actually a bit different.

Andy
But the biggest thing too, Ange is most companies have profit or hopefully have profit at the end of the year, but they don’t even know where the profit is. It’s hiding somewhere under a rock. But now guess what? For a company structure, you need to pay roughly 30 cents in the dollar on how much profit you’d made in your business for the year. So don’t go spending all the cash, cause perhaps you’re about to give it away again anyway. Listen, I know all of this can get so overwhelming, and that’s just another reason why I say, GET YOURSELF A GUN, BOOKKEEPER!  And that way, you don’t have to know all of these rules and toe the line, they will help you do all of that and make your life easier.

Ange
I totally agree. Okay. But although you have to pay out a great deal of tax, you also get the chance to claim loads too, right? It’s all about how we can minimize your tax bill to comply with current laws. 

Andy
Yes. And I do love minimizing my tax bill. 

Ange
Well, this is why you need a good tax accountant. 

Andy
And this is where things obviously get very interesting. That said, there’s some pretty creative claims over the years. I’ve never done them. I know you guys out there haven’t, but let’s go through. Some of the things that you can claim in your business, and we’re going to share all of them with you in a moment. 

Ange
Aha. But first we’re going to play our tax man game.

Andy
Woohoo. I don’t even know why I’m really that excited because I don’t know what’s really going on. So how does this all work? 

Ange
All right. I’m going to share with you things that people have tried to claim as tax deductions. 

Andy
Okay. 

Ange
And I want you to tell me if you think they’re claimable or not. I’m already laughing. So this is hilarious. 

Andy
Yeah. Okay. So you want me to, you want me to think or you want me to think like an ATO man?  

Ange
No, just stick with me. 

Andy
Okay. 

Ange
I’ve got these two little signs for you to hold up. So when I tell you the claim, I want you to answer if you think the tax man accepted or denied them. All right. Here they are. I’m going to hand them to you. 

Andy
Okay. This sounds like a lot of fun, I think. 

Ange
All right, Andy. The first claim is cigarettes. 

Andy
Ah, are you serious? 

Ange
Yeah, I’m deadly serious. This guy claimed that cigarettes helped him feel calm and less anxious on the job, and he said he needed them for his mental health.

Andy
Yeah, but don’t mind about his lung health along the way. Ba ba, denied. 

Ange
Of course, this guy was definitely reaching when he tried to put that claim in. Okay, next one. Dog food. 

Andy
Hmm. Okay. This is a bit of a tricky one because I’ve heard that if you have a guard dog that technically you can claim this, but I suppose what it comes down to, is it a real dog doing a job guarding your tools or your business side? Like what is it? 

Ange
Well, when you say real dog, do you think people would have a cardboard cutout And simply claim dog food. 

Andy
No, I didn’t mean that, but I’ll probably say you can’t have a toy kud voodoo that hangs in someone’s handbag. And they use that as a guard dog versus a rottweiler  or a German shepherd, or even maybe a staffy. I mean, I am a little bit stumped on this one. I’m actually going to say. That if you do it the right way, it could be accepted.  

Ange
Well, you’re right in saying that for a legitimate dog with a job. Yes, that it could be accepted. But this was for a dog that the boss brought to work on site occasionally. So the tax office questioned how they could justify that when the dog wasn’t there consistently. So it was actually denied. 

Andy
Wow. There’s definitely blurred lines around all of that, but hang on, wait. We have a staffie. Are you saying we should be claiming our dog food? 

Ange
Well, that’s a good question. Piper does come to work every day with us, but she doesn’t sleep here. So I’d say no. 

Andy
Well, that’s a bit of a bummer because I tell you what, that dog costs us an absolute fortune. I’d love to claim her vet bills as well. 

Ange
They are astronomical, aren’t they? But she’s worth every cent. All right, let’s move on. The next is a seven day trip to Fiji with a family while also attending a work conference. 

Andy
Well, this is a good one because if they do the right thing and only claim the legitimate parts of this trip, then yes, it will be accepted. I mean, we just did this recently, didn’t we? With our Lifestyle Tradie members in Fiji. Now, obviously you want to speak with your qualified and licensed accountant about this, but you can definitely claim flights for yourself and potentially your partner if they’re also involved in the business. But you know what? If you’re taking the kids, then you probably can’t claim them. And then for the conference days, you can claim those as a business expense, including your meals, as long as you’re doing at least from what I’ve heard, and we talked about this earlier, four hours of business activities. So I am going to say. 

Ange
Yeah, it’s right. You can’t just fly to Fiji and claim it as a business expense if you have a meeting on a boat out on one of those reefs or maybe at the resort golf course. But say you go to a conference like ours,  these are tax deductible because the members are learning for a minimum of four hours each day and it comes under ongoing training or business conference costs which is allowed. Okay, how about an Xbox? What do you think? Accepted or denied? 

Andy
What? An Xbox? Well, Automatically gonna say, Buh bye! You can’t claim on an Xbox. 

Ange
Well, actually, this Xbox was set up in an office for a way to have employees de-stress and have time out. So can you believe it? It was actually accepted. 

Andy
Wow. Well, I suppose I can understand it, but I think you’d have to be really careful, wouldn’t you? And check with your accountant before claiming on these gaming consoles. 

Ange
Yeah. Look, there’s always a fine line. All right, last one. Another guy working from home tried to claim Tim Tams. What do you reckon? 

Andy
Come on. I mean, if you’re going to start claiming Tim Tams, you could claim everything. As much as I love a good Tim Tam slam, surely you’re not able to do that. I’m going to say denied. 

Ange
Correct. There are many things you can claim, particularly if you are working from home. But let me say this, you cannot claim your favorite snack as one of them. 

Andy
So if you are working from home, these are definitely personal expenses. 

Ange
Well, I was reading about this tradie on Reddit who set up a home office, but you know what? He decked out a room in his house with all things gaming, it included a racing style gaming chair and all the bells and whistles.

Andy
That sounds pretty cool. 

Ange
He reckons he got away with it, but you know what? It’s only fun and games until the ATO comes knocking.

Andy
And that’s the thing, isn’t it? Guys, you can do all this kind of stuff, but when they come and knock and there’s a good chance they’re really ramping it up this year and next year. And we’ve heard a lot that the ATO is really on a bit of a rampage with small businesses and we’re definitely in their sight. So they want to recoup the billions of dollars we have in national debt due to the pandemic and they’re tightening up everything, aren’t they? So remember last year we had that huge asset write off. So I think we could claim up to $150, 000 instantly. 

Ange
Well, that’s back down to $20, 000. So when you claim depreciation of your work vehicle, you need to do that over several years. Actually, I remember the ATO commissioner, Rob Heffron, also brought up the issue of small business being responsible for around $33 billion in unpaid taxes. So be forewarned. 

Andy
Wow. That’s crazy. But Guess what, everyone? We know this can all be a bit overwhelming. So to help you at the end of the financial year, we’ve come up with a list of tax deductions that you can claim in your trade business. So remember anything to do with finances, you’ll want to work with a qualified and licensed professional as they will be able to give you the most up to date rules and regulations for where your business is based. 

Ange
You can get your hands on those tax deduction lists on our show notes or go to our website lifestyletradie.com.au.  

Andy
It’s Tradie Dilemma time and this is our Q&A segment where you let us know what you’re having trouble with, within your business and we give you our best advice.

Ange
Okay, today we have a question from Adam in New South Wales and he writes, I’m a carpenter and have been handling my taxes on my own to save some cash, and recently I heard from a friend that I might be missing out on a bunch of deductions. I’m worried about overstepping with the ATO, but also feel like I might not be making the most of my tax returns. How do I figure out what deductions I’m entitled to without getting into hot water? 

Andy
Ooh, okay. So firstly, thanks for the question, Adam. I really appreciate it. So I think the big one here is that you need to go to the experts. If you’re doing your own tax, and that’s warning signs to me straight away, I know you might be a subbie or quite a small business, but when you’re doing this stuff yourself, I think you probably are going to get yourself in hot water. And what happens is the more times you do it, the more you go, ah, no one did much last year. I’m going to go for more and more and more and more until you do get audited. And then they’ll come back and go through your last five years, potentially. And then you’d be like, wow, I am up for so much money. So in short, I would go to an expert. I would make sure that you could show them if you want to do parts of it yourself, show them what you’ve done, but you need expert advice on this.

Ange
I think you’ve covered it. Let’s be honest. Great question, Adam. Thanks for writing in and sharing your dilemma. I hope that helps.  

Andy
Remember, if you have any questions or a dilemma within your business, then reach out to us and let us know what we can help you with.

Ange
Alternatively, if you want to come meet us and ask your question in person, grab a free ticket to our one day live event, where you’ll learn how to get off the tools, make more profit and gain back your time. Lifestyle Tradie On Tour tickets are available now on lifestyletradie.com.au or check out the show notes to book your seat today.

Andy
Have a killer week, crew!  

Subscribe to The Tradie Show, wherever you get your favorite podcasts. Rate and write us a review or for more information about Lifestyle Tradie, head to lifestyletradie.com.au.