Independent contractors account for almost 10 per cent of all employed Australians, according to data from the Australian Bureau of Statistics.
Independent contractors are typically self-employed sole traders operating with an ABN. Freelancers, gig economy workers and anyone with a side hustle outside of their regular employment typically fall into this category as well.
With such a significant portion of the workforce in this category, it's important to ensure you understand your obligations and what you can claim during tax time.
As a freelancer, when you buy something for your business, you can use it to reduce your taxable income. When working for yourself, the line between business and personal expenses can sometimes blur.
Myles Pover, a principal in the business division at RSM Australia, said this was why it is essential to keep accurate records of the amounts you are claiming and to show the expense relates directly to running your business.
"To claim a deduction, the expense must relate directly to operating your business and not be for personal use. If the expense is for both business and personal use, you can only claim the portion of the cost that is used for your business," Mr Pover said.
"The most important thing when claiming tax deductions is to keep appropriate records to evidence the amounts you are claiming. The best way to do this is as you go during the year. Set up a cloud folder or similar and save copies of invoices etc., as you go."
Deductions for freelancers and contractors commonly include:
Mr Pover also stressed the importance of including any gig economy income in your personal or business tax return. Associated work-related expenses should be available as a tax deduction against any income, and it is important records are kept throughout the year to justify any deductions claimed.
"The ATO's data matching capabilities have greatly increased over the years, in particular the direct reporting they receive from businesses and government bodies, so if you're thinking about not reporting gig economy income, it may be possible that the ATO already know about it and are expecting to see it in your tax return," he said.
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