Suitable for: Health care professionals who are completing their income tax return
Tax Difficulty: Moderate
Airtax Experience: First time users
Time to Read: 5-6 minutes
The tax basics you need to know as a contractor working as a caring professional are:
- All individuals (over 18 years of age who are full year Australian tax residents) need to lodge an annual income tax return, unless they earned less than $18,200 and had no tax withheld or paid no PAYG instalments in the financial year.
- If you’re an individual working as a ‘contractor’ or sole trader, you are considered to be operating a business and need to have an ABN, pay tax, and pay super.
- If you are working in a profession where the work you are doing resembles that of an employee you might be considered an employee. It is important to determine whether you are an employee or contractor as there are different tax consequences for both. Read how to determine if you’re a contractor or employee.
- As a contractor, no one is withholding income tax from your earnings, therefore you’ll need to account for and put aside money for tax which will be payable at year end. You’ll also need to make an allocation for the GST payable at the end of each quarter if you are registered for GST.
ABN & GST
As a contractor working in the caring industry you will need to obtain an ABN which you can get through Airtax by following the instructions outlined here. It is important to note that not everyone is entitled to an ABN and you are not necessarily entitled to one if your employer asks you to get an ABN. You need to consider the substance of the arrangement and determine if you are an employee or contractor. Find out if you are entitled to an ABN here.
If you are entitled to an ABN and are earning or expect to earn over $75,000 annually, you will need to register for and pay GST on the income you earn under your ABN.
To report and pay your GST once registered, you will need to lodge regular Business Activity Statements (BAS), generally on a quarterly basis.
You can find out more about when you can claim certain expenses in your BAS here.
If you are not considered a contractor, you would be an employee and therefore would not require an ABN or need to be registered for GST. In this case the income you earn would be considered salary and wages instead of sole trader income. As an employee you can still lodge your tax return through Airtax by including your income under the salary and wages section of the income tax return.
As a sole trader you need to be on top of your income tax obligations. This includes putting aside some cash for your end of year tax bill as no one is withholding tax on your sole trader income during the year which means you could end up in a large tax payable position at the end of the year. This is particularly important in your first year of being a sole trader before you enter the PAYG instalments system.
To help you complete your income tax return, here’s some information about the two main parts - income and deductions:
As an employee:
When disclosing your income, you should report all sources. This could include any of the below:
Salary and wages
These amounts will be included on the payment slip provided by your employer.
Health care professionals are commonly paid allowances in relation to travel, telephone expenses, uniforms and being on-call. Any of these allowances shown as a separate amount on your payment summary needs to be included as income on your income tax return. The respective expense paid by you can then generally be claimed as a deduction.
You may also receive reimbursements for work related expenses that have been paid for by you on behalf of the business. You cannot claim a deduction for any expenses reimbursed by an employer and do not need to include reimbursements as income in your tax return.
Reportable Fringe Benefits
When working in the healthcare industry you might also be receiving fringe benefits. These amounts do not need to be included as income in your tax return. However they are used in determining whether certain surcharges apply to you and whether certain deductions, offsets, and other government benefits can be claimed. Your employer is required to report the benefits provided to the ATO, but the reportable fringe benefits amount on your payment summary should also be included as a disclosure in your income tax return.
Reportable Employer Superannuation Contributions
If you have reportable employer superannuation contributions included on your payment summary, this amount needs to be included as a disclosure in your income tax return, but does not get counted as income. Again, these amounts are used to help determine surcharges and eligibility for some tax offsets, government super co-contributions and other government benefits.
As a contractor:
You need to report the income earned under your ABN in the sole trader business schedule section of your income tax return.
If you were registered for and paid GST during the year you would include the GST exclusive amount in your tax return. If you did not pay GST you would report the total amount.
To reduce your taxable income, you’re able to claim expenses that are directly related to completing your work. If you are any employee these amounts would be included as work related deductions and if you are a contractor they will need to be included as expenses in your sole trader business schedule. Here’s a list of common work related expenses in the health and caring sector:
You may be able to claim car expenses for work-related travel using the cents per km method or the logbook method. You can learn more about these methods here. Travel between home and work, and travel to social functions cannot be claimed.
Car provided by employer
A deduction cannot be claimed for car expenses where an employer or other person provides a car and you do not pay for any of the running costs.
In your role, it’s possible you’re required to wear occupation-specific or protective clothing, which you might be able to claim a deduction for the cost of buying, hiring, repairing and cleaning. While it is not possible to claim a deduction for conventional clothing (including stockings and everyday footwear), it may be possible to claim the cost of some of these items if they form part of a compulsory uniform which, when worn together, identifies you as an employee of the organisation and the policy is enforced by the organisation. Protective clothing that can be claimed must be clothing that helps protect you from the risk of illness or injury posed by your income-earning activities.
Laundry & dry cleaning
It is generally possible to claim a deduction for the cost of laundering and dry cleaning work clothes which are deductible as occupation-specific, compulsory, or protective items (as outlined above). If the claim is greater than $150 and the total claim for work related expenses (other than car, meal allowance, award transport allowance and travel allowance expenses) is greater than $300, the individual needs written evidence for the total claim. Written evidence is not required if the total claim for work-related expenses is $300 or less.
It’s very common to be studying while working in the healthcare field. Therefore, it may be possible to claim a deduction for these expenses. To claim a deduction for self-education expenses, you will need to show sufficient connection between your current employment and the study undertaken. You must show that your education helps to maintain or improve specific skills or knowledge required to do your job, or that the education would result in (or is likely to result in) an increase in your income from that job.
You are not eligible to claim self-education expenses if you are not earning income relevant to the type of study being undertaken, or you are only working casually to support yourself whilst studying. If you are eligible to claim self-education expenses, there are a number of specific expenses that can be claimed, including (but not limited to) course fees, textbooks, stationery, home office expenses, some travel expenses, and depreciation on a computer. It is not possible to claim repayments made on loans with the Student Financial Supplement Scheme (SFSS) or Higher Education Loan Program (HELP).
Agency commissions and fees
Commissions and fees paid to a job placement agency can be claimed as a deduction if you’ve paid for these fees yourself. However, a deduction cannot be claimed for upfront fees, joining fees or search fees.
Annual practising certificate fee
If you’re required to hold a practising certificate, you can claim a deduction for the cost of renewing this annually.
A deduction can be claimed for the decline in value of equipment used for work, including (but not limited to) calculators and electronic organisers, computers and software, answering machines, telephones, mobile phones, professional library, dedicated stopwatches and fob watches. If the item costs less than $300, an immediate deduction can be claimed for the work-related portion of the cost. Items costing more than $300 need to be depreciated over their useful life if you are an employee. If, however, you are a sole trader it may be possible to claim the full cost of capital assets purchased for less than $20,000 under the small business write off rules which you can find out more about here.
First aid courses
The cost of first aid training courses can be claimed as a deduction if you’re the designated first aid person and are required to undertake first aid training to assist in emergency work situations.
Generally, the cost of meals are not considered deductible. However, overtime meal expenses may be deductible if you received an overtime meal allowance which was paid under an industrial law, award or agreement. The deduction can only be claimed if an expense was incurred for overtime meals on an occasion when you worked overtime and received an overtime meal allowance for that overtime.
Seminars, conferences and training courses
If you’re attending seminars, conferences or training courses that are sufficiently connected with their work activities, you can generally claim the cost of these.
A deduction can generally be claimed for the costs of logbooks, diaries, pens and other stationery used for work.
Technical or professional publications
A deduction can generally be claimed for the cost of journals, periodicals and magazines that have content specifically related employment as a healthcare professional.
Telephone calls, telephone rental and connection costs
A deduction can generally be claimed for the cost of work-related phone calls and phone rental. However, it is not possible to claim a deduction for the cost of connecting a phone, pager or any other communications equipment. Similarly, it is not possible to claim the portion of communication expenses which relate to the personal use of the item.
Union and professional association fees
Deductions are generally allowed for fees paid to unions and professional associations with the exception of joining fees, or levies or other amounts paid to assist families of employees suffering financial difficulties as a result of employees being on strike of having been laid off.
Airtax is here to make your tax simpler. Sign up to organise your ABN/GST registration and get your tax sorted here
Where you can get more help:
- Feel free to search for other topics in the Help Centre
- If interested, consider using our Business Assist service to discuss with a qualified PwC Tax Specialist about your BAS (recommended for first time users)