My wife is a teacher that has just finished up mat leave but yet to return to any full time employment.
Whilst on mat leave, she undertook a makeup course. The course has assignments that require you to purchase makeup supplies but they advise to buy significant more to build up the kit once she starts working as a makeup artist. Currently, she hasn't got an ABN though will do as soon as the course is complete.
In her tax return, can she claim these significant expenses as either educational or work expenses? Reallistically they are both but not sure if recognised by ATO. How can we best structure this?
Thanks in advance.
As the study and purchases are for an activity that is not yet earning an income, the expenses cannot be claimed as a deduction. ATO view is that there needs to be a direct connection between the incomes being earned and the expenses.
As far a stocking up early on product to use once stated - from a tax perspective, I'd suggest the opposite. Once work is confirmed, stocking up on the necessary products at the time will provide scope to claim the expenses. If there is too much of a time lag, the claims are lost.
Simple way that I can think of answering your question is as follows:
1. When i was studying accounting degree, all education expenses I incurred were my personal expenses to get ready to be able to find a job / work. This is because of the fact that I was not working in the accounting industry to be able to relate these education expenses as anything to do with my income earning activity.
Coming to your case, I would be dealing with the expenses in similar fashion.
2. I believe this point is something that you would be thinking about ---- You might come across someone who interpret's ATO laws differently and would recommend that you can have an ABN and claim these as business expenses which will help reducing your future taxable business income but this is something that I would not recommend.
Hope this answers your question and can help you make the best decision.
The guys are spot on. In order for the expense to be deductible it needs to have a direct connection to CURRENT income. You cannot claim an expense against future potential income.
the expense will not be deductible against her income as a teacher, nor as a self-education expense, because there is no income from this business or employment.
It is likely that if you shop around you could find someone happy to stick it in your return, but PLEASE think very carefully about this. I guarantee the ATO will take a dim view if you give it a run. And I know that the ATO has a massive budget to audit peoples claims for work-related expenses......so the chance of getting looked at are roughly 100 time higher than they were even 12 months ago.
And an ATO audit is an experience that no-one walks out of thinking "that was fun".
sorry Dan, but the money for the course is not deductible and any supplies she buys is going to end up non-deductible or reported as closing stock in a business schedule......which wont help her at tax time either.
Perfect, thanks Brendan. It's clear now that any work related expenses or purchases should be made once the business is registered and earning revenue. Wish we had of spoken to you guys previously as the items certainly weren't cheap!