As a medical professional, navigating the complexities of tax deductions can be daunting. At Bartons Chartered Accountants and Wealth Advisors, we frequently address a variety of tax-related questions from our clients. This article aims to clarify some of the most common (and interesting) queries we have received, focusing on Personal Services Income (PSI), travel deductions, claiming deductions on investment properties for repairs versus improvements, and entertainment expenses.
Personal Services Income (PSI)
One of the most frequent questions we receive is about structuring tax affairs to minimise tax liabilities. For medical professionals, the income generated is often classified as Personal Services Income (PSI). According to the Australian Taxation Office (ATO), PSI is income produced mainly from your personal skills or efforts as an individual. This means that income earned from patient fees must be attributed to you personally, regardless of whether you operate as a sole trader, trust, or company.
However, income generated by a medical practice, which is considered business income, can be distributed among family members. This distinction is crucial for tax planning and structuring your business effectively. Always consult with a tax professional to determine the best structure for your specific situation.
Travel Deductions
With the resurgence of conferences and professional development events post-COVID, travel deductions have become a hot topic. The ATO allows deductions for travel expenses incurred while attending conferences, including flights, accommodation, and meals. However, if you extend your stay for personal reasons or bring family members along, only the business portion of the expenses can be claimed. For instance, if you stay an extra week for a holiday, you can only claim the expenses related to the conference days.
It’s also important to keep a travel diary if your trip exceeds six days, detailing the business activities conducted each day. This helps substantiate your claims and ensures compliance with ATO requirements.
Claiming Deductions on Investment Properties: Repairs vs. Improvements
Investment property owners often struggle with distinguishing between repairs and improvements. The ATO defines repairs as work done to fix damage or deterioration, which can be claimed as an immediate deduction. For example, fixing a leaking tap is considered a repair. On the other hand, improvements, such as replacing an entire bathroom, are capital expenses and must be depreciated over several years.
Understanding this distinction is vital to avoid errors in your tax return and potential audits. Always ensure that your tradesperson provides detailed invoices specifying the nature of the work done.
Entertainment Expenses
Entertainment expenses are another area of frequent inquiry. Generally, the ATO does not allow deductions for entertainment expenses, including costs related to corporate boxes, sporting events, or social functions. However, there are exceptions if the expenses are considered minor benefits or if they fall under specific fringe benefits tax (FBT) exemptions.
For example, if you provide a Christmas party for employees on your business premises, it may be exempt from FBT if the cost per person is below a certain threshold. It’s essential to understand these rules to ensure compliance and optimise your tax position.
Tax Deduction Queries
Here is a sample of some of the more unusual questions we have received:
- Coffee while working from home: Not deductible for employees but may be deductible for employers providing it to staff on premises.
- Cosmetic surgery: Generally, not deductible as it is considered a personal expense.
- Gym memberships: Not deductible unless there is a direct connection to your employment, such as for a firefighter in a special rescue team.
- Guard dogs: Not deductible for employees but may be deductible for employers needing security.
- Gifts for colleagues or clients: Deductible for employers up to a certain limit, but not for employees.
- New suits: Not deductible unless they have specific branding related to your business.
- Relocation expenses: Not deductible, but you may negotiate reimbursement with your employer.
- Home lottery tickets: Not deductible as they are not considered donations.
As with most tax matters, consulting an accountant is vital, as many tax rules are nuanced and situation-specific, ensuring the best possible outcomes. For personalised advice, don’t hesitate to contact us.
This general advice has been prepared without taking account of your objectives, financial situation or needs. You should consider the appropriateness of this advice before acting on it. If this general advice relates to acquiring a financial product, you should obtain a Product disclosure Statement before deciding to acquire the product.