As a Pet Sitter in Australia, you need to be aware of any tax obligations you might have. The Australian Taxation Office has a web page listing allowable expenses you can claim depending upon what industry you are in, but they haven’t included specific deductions for the Pet Sitting industry.
While this is article is not taxation advice, we have put together a list of expenses that you may possibly be able to claim part of. To be sure, we recommend you book an appointment with a Taxation Accountant.
Examples of Claimable Expenses
1. “Tools” on the Job
If you use items exclusively for pet sitting you may be able to deduct things like grooming equipment, dog and cat treats, squeaky toys, leashes, kitty litter and the roll of plastic dog-litter bags you use to play and care for your clients. If your service includes dog walking, you may be able to deduct what you spend on sneakers and rain gear.
2. Self-Education Expenses
PetCloud's Accredited Pet Sitting Course is a great example of what the ATO calls a self-education expense which you may be eligible to claim a tax deduction for. You may also be able to take a deduction for the cost of other seminars plus travel and hotel room expenses. Your subscriptions to any work-related magazines or websites may also be deductible.
3. Computer & Printer
Think about what you use to communicate with clients. You may use a mobile phone, a laptop, or tablet to take bookings, research, learn or share photos and videos with pet owners missing their furbaby. Your Computer & Printer may possibly attract a partial tax deduction as an allowable expenses.
4. Your website Listing on PetCloud
Your online listing is almost like a marketing brochure and gives you a chance to tell potential customers what services you offer, show real life photos and detail your rates. Your PetCloud listing may be an allowable expense. Again, speak to your Accountant.
5. Phone & Internet
The cost of a business phone (landline or mobile) and internet is an allowable expense, however if there is personal use then only a proportion of the costs relating to your business can be claimed.
6. Branded clothing
If you have a PetCloud Tshirt that you wear while you walk dogs for example, then you may be able to claim for this cost. There are also some circumstances where you can also claim the cost of some basic outdoor clothing if you are out walking dogs such as rain coat and gum boots.
You can’t claim the cost of wearing your usual / normal clothing and unfortunately the cost of washing your clothes at home is not either.
7. Mileage (Fuel in your car)
Offering a pick up and drop off service for pets may be part of your services you offer as a pet sitter. If so, keep a note of the mileage you travel. Record your kilometres in a log book to and from your destination and keep petrol receipts
8. Use of your Home
There are rules that will allow you to claim an amount for the running costs of being a self employed pet sitter from your home as a portion of your household bills such as gas, water, electricity, mowing the lawn, or rent. Make sure you have an idea of your household running costs to discuss with your accountant at tax return time as they will help you work out how much you might be able to claim against your taxable income.
9. Treats, Pet Food and Toys
You need to keep pets enriched, fed, and watered, so keep your receipts for any of these costs. This way you may be able to claim a tax deduction.
10. Accounting & Bookkeeping
Keeping good business records will save you stress, time, and hassle in the long run. It will also help you to avoid forgetting out entitlements you may be eligible to claim. The more organised you are, the less fees you'll also be charged by your Accountant. Using a cloud based accounting software such as Xero, Quickbooks or Wave will make life easier, so if you do choose to sign up the cost of the monthly subscription may be tax deductible. Then, if you choose to use an accountant to complete your self assessment tax return, again their fees will be an allowable expense.
11. Bank Charges
It is advisable to open a business bank account and be sure to record your business and personal expenditure separately. The bank charges you pay on your business bank account may be treated as an expense you might be able to claim as a tax deduction.
If you donate to your local animal-welfare charity, such as the RSPCA, you may be able to claim a tax deduction.
All these expense claims are great for Pet Sitting businesses, but you next need to know how to claim them
1 - Determine if your Pet Sitting activities are a Hobby or Business
For guidance on whether you are carrying on a business, see the Australian Taxation Office (ATO) article "Are you in business?” The ATO guidelines are quite general in nature. The ATO states that there is no single factor that determines if you are in business, but some of the factors you need to consider include:
- You've made a decision to start a business and have done something about it to operate in a businesslike manner, such as registered a business name, or obtained an Australian Business Number (ABN).
- You intend to make a profit – or genuinely believe you will make a profit from the activity – even if you are unlikely to do so in the short term.
- You repeat similar types of activities.
- The size or scale of your activity is consistent with other businesses in your industry.
- Your activity is planned, organised and carried out in a businesslike manner. This may include keeping business records and account books, having a separate business bank account, operating from business premises, having licenses or qualifications, having a registered business name.
Many people find this guidance confusing. The ATO admits the factors listed are not a complete list of factors. What other factors could apply then?
If you are unsure as to whether your pet sitting is a hobby or business, you can call the ATO's small business info line on 132 866 or seek the advice of a tax accountant that is experienced in this area. Remember, if your pet sitting can be classed as a hobby, then you won’t have any tax payment or reporting obligations whatsoever - enjoy your tax-free income!
2 - I have a Pet Sitting Business - what do I do next?
If you have a pet sitting business, you need to:
- apply for an ABN if you don’t already have one
- lodge an income tax return to report your pet sitting income and expenses for the financial year (1 July to 30 June).
It’s not likely you'll need to register for Goods and Services Tax (GST). You’re only required to register for GST if your pet sitting income exceeds $75,000 per year. Other income you may have such as wages/salary, investment income, even other business income, is not included with your pet sitting income in determining whether you have exceeded the $75,000 threshold.
You can still register for GST if your pet sitting income is less than $75,000, but you’ll usually be worse off. Although you can claim GST on expenses if you are GST registered, you'll have to charge GST on your invoices. Since your income will normally exceed your expenses, you would end up paying more GST than you claim back.
Taxable income vs Tax loss
You may pay tax on any taxable income, which is the amount by which your pet sitting incomeexceeds your tax deductible pet sitting expenses. How much tax you pay, depends on how much (if any) income you have from other sources, such as salary/wages or investments.
Although the tax free threshold is currently $18,200, the effective tax free threshold is $20,542. This is because a low income tax offset effectively increases the threshold.
If your total taxable income, including pet sitting net income, is less than $20,542, you won’t pay any tax. If your total taxable income exceeds $20,542, you'll pay tax at these rates (you should add 2% to these tax rates as they don’t include the Medicare levy of 2%, which is effectively a tax).
If you qualify for the seniors and pensioners tax offset, your effective tax free threshold is currently $32,279 if you are single or $28,974 each as a couple.
If your pet sitting expenses exceed your pet sitting income, the result is a tax loss. You may be able to use this loss as a tax deduction to reduce tax payable on income from other sources such as salary/wages or investments. To do so, you must satisfy one of the non-commercial loss tests.
The most common non-commercial loss test is the Assessable income test. To pass the Assessable income test, your pet sitting income for the financial year must be at least $20,000.
The second most common test is the Profits test. Your pet sitting business will pass the Profits test if it has made a taxable profit in three out of the past five years (including the current financial year).
If you don’t pass any of the non-commercial loss tests, you can defer your loss for use in a later year. If your pet sitting business makes a profit in a following year, you can offset some or all of the deferred loss against this profit, up to the amount of your profit. There is no time limit on how long you can defer your losses.
3 - Understand how Tax deductions work
It’s important to understand that you don’t get back the whole amount of a tax deduction as a tax refund. You will only get back a percentage, which equals your marginal tax rate times the deduction.
For example, let’s say your marginal tax rate (including Medicare Levy) is 34.5% (check here to see what your marginal tax rate is). If you earn $1,000 from your pet sitting business and have no tax deductions, you will pay 34.5% x $1,000, which results in $345 tax payable.
If you have $200 of tax deductions, your net taxable income will be $1,000 - $200 = $800. Your tax payable would then be 34.5% x $800 which results in $276 tax payable.
Before deductions you had $345 tax payable whereas after deductions you have $276 tax payable. $345 - $276 = a $69 reduction in tax.
So essentially, because your taxable income has reduced by $200, you are no longer paying 34.5% tax ($69) on this $200.
A big thanks to Bristax for this article. For more tax articles or to get their help, see https://bristax.com.au/articles/