Construction tools and equipment: the $300 rule explained

The tools you buy yourself are the biggest deduction most tradespeople have, and also the one most often claimed wrong. A drill, a grinder, a nail gun, the toolbox they live in: you paid for them because the job needed them, so the money is yours to claim. What trips people up is not whether a tool counts, but how you claim it, and the answer turns on one number. Get the $300 line right and the rest of your tool spend falls into place. Get it wrong and you either overclaim on an expensive tool or leave a good deduction sitting on the shelf.

The $300 line

How you claim a tool depends on what it cost you, and this is the mechanic behind every other point on the page.

• $300 or less. You claim the full cost in the year you buy it. The cheap hand tools, the batteries, the blades and bits: each one under $300 comes straight off this year's return.
• Over $300. You claim the decline in value, the tool's depreciation, spread across its effective life. You choose prime cost (the same amount each year) or diminishing value (more early, less later) and stick with it for that tool.
• Apportion private use and part-year ownership. If you also use a tool at home, claim only the work-use share. If you bought it partway through the year, you only count the days you held it.
• The two errors. One is claiming an expensive power tool in full in year one when it has to be spread. The other is the flip side: assuming a $480 kit is not claimable because you cannot write it off at once. It is claimable, just over several years.

The set trap

This is the rule that catches tradespeople most, because it defeats the obvious workaround. You cannot dodge the $300 line by buying an expensive set one cheap piece at a time.

• A set is judged as a whole. A set, or a group of identical or substantially identical items you start to hold in the same year, that together costs more than $300 must be depreciated even though every piece is cheap.
• The ATO's own example. Sixteen spanners bought individually at $22 each come to $352. As a set that is over $300, so there is no immediate write-off. You depreciate the lot.
• The later replacement is different. If one spanner wears out and you buy a single replacement later, that one is not part of a set bought that year, so it is deductible in full the year you buy it.

Depreciation keeps going

A tool over $300 does not only appear on the return the year you buy it. You keep claiming this year's slice of its decline in value every year until the tool is written down to nothing, and this is the part people forget once the purchase is a couple of returns behind them.

• Carry it forward. The grinder you bought two years ago still has value left to claim this year. Pick it up on this return, not just the year you paid for it.
• Keep the schedule. The decline-in-value figure comes off the tool's remaining value and its effective life. The ATO's depreciation tool works it out, so you do not have to do the maths by hand.

Repairs, insurance, hire

The $300 line governs buying a tool. It does not govern keeping one working, insuring it or renting one, and those are deductions in their own right.

• Repairs and maintenance. Servicing, sharpening, and replacement blades and bits are deductible regardless of the $300 rule. You are keeping a work tool working, and that cost is yours.
• Tool insurance. The work-use portion of a specific tool or portable-equipment policy is deductible. A general home-and-contents policy does not qualify, even if your tools happen to be covered under it.
• Toolboxes and hired gear. A toolbox is tested against the same $300 line as any other tool. Gear you hire or rent for work is deductible for the work-use portion.

The write-off that isn't yours

Every generic trades tax article pushes the instant asset write-off, and for a PAYG employee it is a trap. It is not your rule.

• It is a business concession. The instant asset write-off lets a small business immediately deduct assets up to a cap the ATO sets, and it is turnover-tested. It belongs to businesses running an ABN, not to employees.
• Your rule is stricter. As a PAYG worker your line is exactly the one on this page: $300 or less immediate, over $300 depreciate. The write-off cap you see quoted online does not apply to you.
• Which one are you. If you are unsure whether you are an employee or a subcontractor on an ABN, that changes what deductible means for everything, not just tools. See the employee or subcontractor chapter before you rely on either rule.

The tool allowance catch

A tool allowance on your payslip feels like it settles your tool claim. It does the opposite: the allowance is income, and your deduction is separate.

• Declare the allowance in full. A tool allowance is assessable income. The whole amount goes on your return whether or not you spend it.
• Claim your actual spend. The allowance is not your deduction. You claim what you actually spent on tools under the $300 rules above, and the two figures are worked out independently.
• More on allowances. Site, tool and meal allowances all follow this pattern, and the allowances chapter covers where each one lands.

The records behind a tool claim

Every tool above stands on the receipt behind it, and a tool-heavy claim is where the paper trail tends to leak. You want a receipt showing the date, the supplier, the item and what it cost, kept for five years. For anything you use at home as well as on site, keep a note of how you worked out the work-use share, because that split is the first thing questioned. And if your total work-related claims come to more than $300 across the year, you need written evidence for all of them, not just the big-ticket items. The ATO's free myDeductions app will hold receipts if you are disciplined about entering them.

The bottom line

Sort every tool by what it cost. Under $300 comes off in full this year, over $300 is spread across its life, and a set is judged as a whole no matter how cheap each piece is. Keep claiming last year's tools until they are written off, add the repairs, the specific tool insurance and the hire, and leave the instant asset write-off to the businesses it was built for. Declare a tool allowance as income and claim your real spend against it. Do that with the receipts to back it, and your tool bill lands on your return where it belongs.

General information only, not tax advice. Check the ATO or a registered tax agent for your situation.