You can claim a tax deduction for most expenses you incur in carrying on your business if they are directly related to earning your assessable income.
Here is an overview of the various tax deductions available to Australian businesses, helping you understand what expenses you can claim while ensuring compliance with the Australian Taxation Office (ATO) guidelines.
What You Can Claim?
You can claim a tax deduction for most expenses incurred in carrying on your business if they are directly related to earning your assessable income. These include:
• Day-to-day operating expenses
• Purchases of products or services for your business
• Certain capital expenses, such as depreciating assets like machinery and equipment.
Key Rules of Deductions
There are 3 golden rules for what we accept as a valid business deduction:
• Business Use: The expense must be for your business, not for private use.
• Mixed Use: If the expense is for both business and private use, you can only claim the business portion
• Record Keeping: You must have records to prove the expense.
Special Considerations
• You can’t claim the GST component of your expenses as a deduction if you can claim it as a GST credit on your business activity statement.
• Deductions are allowed for expenses related to protecting staff from safety hazards, such as personal protective equipment, and cleaning supplies
What You Can’t Claim
Certain expenses are not deductible, including:
• Entertainment expenses (unless provided as a fringe benefit)
• Traffic fines
• Private or domestic expenses (e.g., expenses for family, childcare fees, family clothes)
• Expenses related to earning non-assessable income (e.g. batting, gambling, earnings from a hobby)
• payments for which you have not met your PAYG withholding or reporting obligations (non-compliant payments, e.g. employee salary without PAG withholding/reporting)
Apportioning Expenses that have both business and private purposes
For expenses with both business and private purposes, you must apportion the expense based on the business use. Methods vary depending on the type of expense:
• Home-based business: Apportion based on floor area and time used for business.
• Motor vehicle expenses: Methods vary by business structure and vehicle type.
• Other expenses: Apportion based on fair and reasonable business use.
You need to keep records to show how you have apportioned your expenses.