Before I go into the how and the what of saving lots of $$$ from free apps, let’s talk about deductions.
For anyone who has lodged a tax return before, whether DIY or through an agent, you know that the best way to maximise your tax refund is to claim as many deductions as possible. And in order to claim a deduction, you need 2 things - Substantiation and Nexus to the income earning activity (unless there is an exemption under a tax ruling, for example, donations or tax return fees).
Nexus - a fancy way of saying “related to” - involves proving that the expense was incurred in order to produce the income. For example, you might earn $500 interest in a savings account which had bank fees of $60. The bank fees are directly related to the interest income.
Sometimes nexus is obvious or implied, such as a trade person’s tools or laundry of work-provided uniform. Other times it needs to be proven, such as using your car or mobile phone for work-related purposes. In cases where you need to prove the nexus, the ATO accepts an employment contract or letter from your employer, outlining how the use of your car, mobile phone, home office, computer etc, is required in order for you to perform your work duties.
Once you can establish the nexus, then you need to get substantiation.
Substantiation - “evidence” that you incurred the expense - can be tricky because people generally don’t keep receipts in boxes, and most individuals do not have bookkeeping skills (and let’s face it, unless you ARE a bookkeeper, who has time to learn?), so keeping track of your receipts can be a difficult undertaking. But it really doesn’t have to be.
There are some really great apps available online, for free, which can help you to keep track of your expenses, store your receipts, and log your kms on your car. Here is a brief summary of the best free ones I have come across.
This ATO-compliant app records the work-related (and personal) trips you make with your car. The app is as easy as tapping your screen when you get into your car, and tapping out once the trip is complete. Details recorded by the app include the date and time of the trip, start and end addresses, kms travelled and the cost you can claim using the Cents Per Km method. You can add notes about the trip, view a map of your journey and export reports of your car usage. Basically, this app does a bunch of amazing stuff that people used to have to do manually - such as enter data from the car’s odometer into little logbooks and use calculators to add up every little trip.
Now, technically, the app is free (if you subscribe to the Lite version). But the functionality is limited. You can record unlimited trips but can only view 20 per month. The mileage should still show up in your reports. One way around this is to take screen shots of your trips and store them on your phone, if you need them. Most employees will not be making more than 20 trips a month, but for those who do, it might be worth upgrading to a paid subscription (which by the way, is tax deductible).
So how does this app save you money?
For every dollar you claim for your work-related car use, you will reduce your tax (and most likely get a refund) by an amount equal to your marginal tax rate. So if you log 5000km on your car during the year (1250km in a 13 week period - the minimum period required to keep mileage records), the deduction you can claim is $3300 (66c per km). That’s a tax saving of $1287 if your income is over $90,000, or $1138 if your income is between $37,001 and $90,000). Please note, for the Cents Per Km method, you do not actually need to keep a log book. However, as a tax agent, I am involved in numerous tax audits throughout the year, and ATO will ask you to substantiate your km claim. These sort of records would be accepted by ATO, and you do not need to keep receipts.
If you have more than 5000km in the year, then you should use the logbook method to claim work-related car expenses. The logbook method requires (1) a logbook - obviously - and (2) receipts, including purchase invoice and current ownership records of your car. Which brings me to the next awesome app..
This is a companion app that syncs with an online Wave account. The account is 100% free - and is similar to cloud accounting software such as Xero and Quickbooks, but it literally costs nothing. As an aside: I registered an account to see how the main component of Wave Accounting works, and its very easy to use. Not anywhere near as good as Xero but if you are using it for a small sole trader business, or even just to keep track of your personal expenditure, it’s really great (and free, did I mention that?).
The first step is to register an account with Wave Receipts. From there, record keeping becomes a breeze. You take a photo of your receipt with the app, the image is scanned and the data is digitised, categorised and stored online. You then throw away your original receipt and never think about it again (until Tax time that is). If you want to go that extra step and keep track of your income and expenses on Wave, then you can use the software’s report function to send a summary of your expenses to your tax agent.
So how does this app save you money?
As I stated before, if you want to get a good refund, you need to claim as much as possible. I hate the idea of spending money in order to get a refund, but so many people spend money and don’t claim, because they didn’t keep track of their expenses.
Once you have the records, a good tax agent should be able to work out what you can and cannot claim. So get scanning! Because you will need as much information as you can when tax time comes around.
Watch this space..
I will continue to add more information about useful free apps that I come across, so come back to see what other interesting cool stuff is out there.