The short answer is ABSOLUTELY YES, you can claim your handbag as a tax deduction. Up to $300.
But don’t go shopping just yet! There are some important things to keep in mind.
The basic rules for claiming a handbag or briefcase as a tax deduction is that it must be directly connected with producing your income.
As the financial year comes to a close and we are all frantically getting our accounts in order, be smart with your tax and claim part of your everyday workbag essential.
After a wee reminder from Melissa Browne, CEO of accounting firm A&TA and author of Fabulous but Broke, I wanted to share some tips on how to tick the tax office boxes when claiming your workbag.
What’s classed as a work companion?
Australian tax law states that your bag must be used for work-related purposes, purchased to house your laptop, iPad, business cards, pens and documents throughout your working day. If 100% work-use related you could be eligible for a tax deduction up to $300.
What are the rules?
The Tax Office loves documentation so to cover all your bases keep a record of the work use of your bag, ideally a logbook for a period of about three months.
If you carry 2 bags, a smaller bag for your wallet, keys and skincare essentials and the second for your bulkier laptop, tech and client servicing items, this makes the claim even clearer for the Tax Office. Photo evidence proving the usage is a plus, however if you are a one bag fits all kinda wearer, then you should really maintain a log-book in the event that the ATO decides to audit your tax affairs.
If the bag being transported back and forth from home to work each day is a small clutch that holds a phone, a few cards and house keys, that is probably not going to cut it. The same goes for a bag that holds a change of clothes for a gym session afterwork. Those items are not work related, and therefore the bag that transports them is not an allowable deduction.
On the other end of the scale, think of an office worker who works in a “hot-desk” environment. Their workplace requires them to transport a laptop or tablet to and from work each day. To protect their expensive piece of machinery, the worker purchases a backpack or modern handbag with a compartment specifically designed to protect laptop computers against damage.
That employee is far more likely to be able to claim the cost of their handbag as a tax deduction. This is because there is a clear connection between the purpose of their bag and their work activities.
Keep your records/receipts
The first step to claiming your handbag or briefcase as a tax deduction is to keep your receipt. Snap a photo or get an electronic copy of the receipt sent to your email. If the bag costs above $300 you will need to depreciate it rather than claim the amount in full on your next tax return. You can save that receipt right into your Etax account so you don’t forget to claim it in July.
The other simple rule to remember is that you must have spent the money yourself. If an employer provides a company-branded laptop satchel free of charge, or reimbursed you for your purchase, then you can’t claim it as a deduction on your return.
A small effort I would say for a worthy tax deduction!
So what do you get back?
As we know tax is never straightforward. Here is a break down of the different scenarios:
- Employees – for a bag less than $300 you can claim an immediate deduction (for the work- percentage allocated to work use). This is a tax saving of approximately $100 in the tax year you purchased the bag (if your log book states 100% business use).
- For a cost greater than $300 you’ll need to depreciate the bag over a number of years which means your claim is stretched out and so is the tax saving.
- If you are self-employed – it’s much easier and if you’re registered for GST you’ll receive a dual saving.
- First you’ll receive a credit for the GST component and if you’re a small business with a turnover of less than $2 million and the bag cost less than $20,000 you can claim the entire amount as a deduction in the tax year in which you bought it. Here is an example, for a bag costing $1100 you could receive up to $100 back in GST and if you’re in the middle tax bracket you’ll save approximately $300 in tax.
Assistant Tax Commissioner Graham Whyte clarifies that you “can claim a deduction for assets that are predominantly used for work purposes, such as bags and satchels used to carry work papers or electronic devices, to the extent that such items are used for work purposes. It is the use of the item rather than its description that is relevant. For example, if a briefcase is primarily used to carry lunch and other personal items to work it is being used in a similar way to a handbag and no deduction for its cost would be available.”
Always proceed with caution
The ATO has been very public in saying that it will be looking much more closely at work-related tax deductions. They say too many people claim deductions they are not entitled to.
This doesn’t mean you shouldn’t claim a handbag or briefcase as a tax deduction if you have a legitimate claim. But, if you’re not sure, always ask your tax agent for advice!
So treat yourself to an EOFY gift and buy that Hills & West piece you have been eyeing off to make your everyday workday easier. Laptop, chargers, notebooks, cards and all.. Make your workday that little bit more stylish (with the bonus of deducting it from your tax).
Also, we have an EOFY sale until the 30 June 2022, where you can get 40% off some selected items as we clear our warehouse. Use EOFY40 at checkout.
Check out some of the following that can be your everyday work saviours;
- the Morgan 3 in 1 Backpack – in Black and in Grey
- The Navy and Black Backpack
- The Everyday Tote
Some other everyday worthy bags include;
- Our Apple Collection Oversized Tote – fill with all your work needs
- The Weekender – if you travel for work and need a travel bag to hold all your work essentials
Enjoy and love your Hills & West work companion even more!