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When Can You Claim Removal or Moving Expenses as a Tax Deduction?
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When Can You Claim Removal or Moving Expenses as a Tax Deduction?

 

Moving to a new place can be exciting, but the process is not always easy. Before settling in a new location, you need to find a moving date, pack all your belongings, and transport them. While all this is happening, you also have another big thing to consider: expenses. Whether you move on your own or hire professionals like AAA City Removalist, you will incur different costs throughout the process.

Moving costs can quickly add up and get expensive, so any form of financial reprieve is welcome. Specifically, if you are moving for your job, you might be wondering if your moving expenses are tax-deductible. Read on to learn more about how the taxation rules will work for such cases.

General Rule for Moving Expenses as a Deduction

According to the Australian Taxation Office (ATO), removal and relocation expenses refer to the costs incurred when moving for work-related reasons. It may include transferring locations within your existing employment or for a new job under a different employer.

Regardless of your situation, the ATO specifies that these expenses are not deductible from taxes since they are not directly related to earning your income. Rather, they help you start earning income, so they count as private expenses.

Claiming Moving Expenses Through the Fringe Benefits Tax Act

While you cannot claim your moving expenses as tax deductions, a possible workaround is to have your employers “pay” for these through Fringe Benefits Tax (FBT).

FBT is a tax that companies pay for employee benefits they offer. However, one exemption in the FBT Act allows employers to pay or reimburse certain costs associated with an employee’s relocation. They will also be able to claim tax deductions for the costs incurred and GST input tax back on the expense. Your moving expenses become tax-deductible since you are not paying them personally.

With this, you can work out an agreement with your employer to reap this benefit. In most cases, employees pay the expenses through a salary sacrifice agreement, which reduces their gross annual wage by the total relocation costs. Employers can then pay the costs directly or reimburse you if you have already paid for them.

When Can You Claim Removal or Moving Expenses as a Tax Deduction

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To better understand how this arrangement works, consider this example: You are moving to another state in Australia and pay a total of $11,000 in relocation expenses.

Under a salary sacrifice agreement, you essentially “sacrifice” the $11,000 expenses from your wages. However, your employer will only take $10,000 since they can claim back $1,000 GST input tax credits, totaling $11,000 gains without any FBT to pay. They will then reimburse you the full $11,000 you paid for your relocation, allowing you to enjoy the tax deduction for your move.

All relocation costs paid by your employer will be tax-deductible, almost like they were paid as salary or benefits. They will also receive appropriate GST input tax credits and have no payable FBT. So, conversely, you can enjoy a tax-free move.

Overall, this arrangement can understandably sound confusing at first, so it is highly recommended that you speak with an accountant to work through the numbers. Additionally, not all companies offer similar FBT packages, so make sure you discuss with your employer beforehand.

Scope of Removal and Relocation Costs

If you are interested in claiming your moving expenses as a tax deduction, it is essential to know what specific items count as removal and relocation expenses:

  • Removals and storage of belongings
  • Relocation transportation
  • Incidental costs associated with selling the old house and acquiring a new house
  • Temporary accommodation, meals, and leasing of household goods
  • Utility connections (telephone, gas, electricity)

Again, there may be restrictions on what you can claim as tax deductions. Thus, it will be best to consult a tax accountant for advice on how to go about your situation.

Moving can be stressful, given everything you need to plan for and coordinate. So if you need a helping hand, consider hiring professional Movers like AAA City Removalist to take over the work. At the same time, do not let the costs add to your headaches. Instead, take some time to figure out what arrangement you can have to make your moving expenses tax-deductible.

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