Setting up as a barrister can be an expensive process. There's PI insurance, floor fees, robing and court attire costs, not to mention the accounting and taxation costs incurred in setting up your sole trader business structure.

Did you know that many of the costs incurred can claimed as tax deductions? Understanding what is and isn't tax deductible is crucial for junior barristers looking to optimise their finances.

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How tax deductions work

When lodging your tax return, certain expenses can be claimed as deductions. These expenses are primarily associated with generating your income, although there are exceptions, such as donations, which aren't directly tied to income generation. Tax deductions serve to decrease your taxable income, and operate as follows: your assessable income, comprising earnings from work or investments, is reduced by allowable deductions—expenses incurred in the process of earning your income—resulting in your taxable income, the basis on which taxes are calculated.

How to claim deductions

To qualify for a deduction on a work-related expense:

• you must have personally incurred the expense and not received reimbursement
• the expense must be directly linked to earning your income
• documentation, typically in the form of a receipt, is necessary to substantiate the expense

These tax deductions are declared in your tax return within the sections dedicated to work-related expenses.

If the expense serves both work and personal purposes, only the portion related to work is eligible for deduction.

For guidance on completing your tax return, reach out to us today. We have been helping barristers manage their tax obligations for over 20 years.

Work-related expenses that can be deducted

In June each year you can take actions that affect your taxable income for the preceding tax year. The following is a list of possible tax deductions that you may be able to claim:

• Rental of floor chambers
• Payments to clerks
• Robing and court attire and related laundry and maintenance costs
• Subscription to the Bar Association and the Law Society
• Bags and briefcases
• Practicing certificate
• Computers
• Travel expenses
• PI Insurance
• Interest on borrowings for purchasing chambers
• Superannuation contributions
• Bank fees
• Course fees for education
• Legal research fees, such as Westlaw Au, LexisNexus, Law Reports
• Phone, data, and internet expenses
• Home Office Costs
• Journals, Law Books, Loose Leafs
• Work-related self education
• Motor vehicle expenses

Record keeping for work expenses

To qualify for a tax deduction, you must obtain and retain records verifying the costs incurred for the expenses. Additionally, you must demonstrate how the expense directly contributes to earning your employment income.

Typically, records take the form of receipts, although other forms of written evidence, such as invoices, may suffice. Certain exceptions apply to record-keeping requirements:

• Small expenses (amounting to $10 or less)
• Instances where obtaining receipts is challenging
• Keeping records for travel and overtime meal allowances

For most expenses, a receipt or similar document from the supplier is necessary, containing details such as the supplier's name or business name, the expense amount, description of goods or services purchased, purchase date, and document production date. These documents must be in English if the expense is incurred in Australia.

During tax preparation, you can upload these records or share them with a tax agent to streamline the process of lodging your tax return.

Broadly speaking, there are two ways you can make record keeping easier:

Conduct all business transactions exclusively through dedicated business accounts

Combining personal and business finances is all too common but it makes tracking your business expenses much more difficult than it needs to be. After setting up your bank accounts, you need to ensure business expenses are charged to your business card and personal expenses to your private card. This practice not only simplifies tax and BAS processes, it also maintains up-to-date financial records, valuable for loan applications or refinancing.

Integrate your business accounts with bookkeeping software

There are several software services designed specifically to help barristers and other legal professionals with keeping track of their books. The two most common are Bar Books and SILQ. The other software option tailored for small businesses is Xero, which we have much experience with.

Other deductions - superannuation

Under current tax law, a self-employed Barrister isn’t required to contribute to a superannuation fund, however, many Barristers set up contribution strategies to have regular amounts set aside for their superannuation plan. A maximum concessional contribution per annum per person is currently $27,500. Should this be made to a complying superannuation fund, the taxpayer can gain a tax deduction.

Industry-based funds have been established to cater for specific members, including those who work in the legal profession.

A Self-Managed Superannuation Fund (SMSF) is a regulated fund that’s established to gain more flexibility around the investment criteria of the fund. SMSFs require more active engagement; everything from making investment decisions to ensuring all the legal, taxation, and administrative obligations of the fund are met.

Changes for claiming a deduction for working from home expenses

The Australian Taxation Office (ATO) has revised the fixed rate (67 cents per hour) method and their record-keeping obligations when claiming additional running expenses incurred as a result of working form home in the 2023 income year.

If you have worked from home at any time from 1 July 2022 onwards, you may be eligible to use the Australian Taxation Office's revised fixed-rate (67 cents per hour) method to claim your deductions.

You no longer need a dedicated home office or dedicated work area set aside in order to apply the revised fixed rate method. The previous 52 cents fixed rate method covered the decline in the value of home office furniture, energy expenses for heating, cooling, and lighting, and the cost of cleaning your dedicated home office.

Under the actual cost method you must appropriately apportion the running expenses. To learn more, read our article changes for claiming a deduction for working from home expenses here.

Lodging your BAS

As a sole trader, you'll need to lodge a Business Activity Statement (BAS) on a quarterly basis to report any GST you've collected from your clients and claim GST credits. A BAS will also report any PAYG Withholding obligations if you employ people and report any PAYG instalments. 

Take the stress out of preparing your individual tax return by working with accountants who will take the time to understand your specific circumstances. We can assist you with the following:

• Preparation of financial statements
• Compilation of financial statements
• Review of financial statements
• Analysis of financial statements

Tax planning

Are you prepaying your expenses? Are you maximising your deductions, e.g. personal superannuation contributions? Writing off bad debtors to claim a bad debt tax deduction? Do you have Capital Gains Tax (CGT) issues you need sorted to minimise any capital gains by accessing all available exemptions and concessions?

We help junior barristers with applying for loans and rent applications

We understand the difficulties many barristers who are just starting out have with satisfying the usual criteria required for being eligible to receive a mortgage or to be successful on a rental application. With little to no earning history in your sole trader entity, and uncertain annual revenue, there are considerable challenges. We have been helping such barristers for the past 20 years with overcoming these hurdles. If you require advice or assistance in this area, get in touch with us today.

Next steps

Setting up practice as a barrister isn't a cheap process. There's gowns, the bar course, chambers-related fees, and the accounting costs that are associated with setting up your business as a sole trader. We understand you have a lot to consider, but it's our hope that this article has shown you how tax deductions work and how you can claim tax deductions from expenses incurred in the course of your legal work so that you can benefit in your early years operating as a new barrister.

We have been helping barristers in New South Wales with their taxes for over 20 years, from senior counsel all the way to junior barristers starting out in the first year as readers. If you need help setting up practice as a sole trader or would like an experienced tax accountant to handle your tax and accounting affairs, inlcuding helping you to claim deductions, reach out to us today for a complimentary consultation.

About Causbrooks

At Causbrooks, we’re dedicated to helping those in the legal profession with their taxation and accounting needs. If you’d like to discuss your own situation, please complete the form below.

We have been working with legal professionals for going on three decades and during that time we have helped many barristers in the early stages of their careers by establishing a strong foundation of tax compliance, bookkeeping, cashflow budgeting, and tax planning.

Disclaimer

Any advice contained in this document is general advice only and does not take into consideration the reader’s personal circumstances. Any reference to the reader’s actual circumstances is coincidental. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances.

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