Running a business can be an expensive undertaking, so any chance to recoup hard earned dollars should of course, be given suitable time and attention. One way that you can potentially do this is, to maximise your business tax deductions. You should ensure that you not only understand what you can and cannot claim, but also what the ATO requires in regards to accepting any deductions that you are seeking to claim.

3 Golden Rules of Business Tax Deduction

Generally speaking, the ATO allows you to claim a tax deduction for most expenses that are incurred in the process of carrying on your business. Importantly, the expenses you are seeking to claim need to be directly related to your business earning assessable income.

These 3 golden rules should help to keep you on track with what the ATO will accept as a valid business deduction.

  1. The expense must have been for your business, not for private use.
  2. If the expense is for a mix of business and private use, you can only claim the portion that is used for your business.
  3. You must have records to prove it.

Types of Business Tax Deductions that can be Claimed

There are too many eligible business tax deductions available to be able to list them all here individually.

As a rough guide, the main types of expenses that you may be able to claim as a business tax deduction include:

  • Motor vehicle expenses
  • Home-based business
  • Business travel expenses
  • Digital product expenses
  • Workers’ salaries, wages and super contributions
  • Claiming deductions for PAYGW payments
  • Repairs, maintenance and replacement expenses
  • Other operating expenses – including purchasing stock, marketing, utilities, bank fees, insurance, tax related expenses, office stationery and many others
  • Depreciating assets and other capital expenses

You are able to claim deductions for expenses related to protecting staff from safety hazards involved in performing their duties. This includes protection from infection from COVID-19 or other transmissible diseases. This may include the provision of items such as hand sanitiser, sneeze or cough guards, face masks, gloves, other personal protective equipment, antibacterial wipes and other cleaning supplies that are used for business purposes. In this case, these items are able to be claimed as business tax deductions.

Changes to work arrangements as a result of COVID-19 might mean that you have provided your employees with benefits you would not usually provide, such as items that allow them to work from home. Depending on the specific details of what was provided, there may be Fringe Benefit Tax (FBT) considerations, exemptions or concessions that may apply.

What Can’t I Claim as a Business Tax Deduction? 

While there is a long list of things that can be claimed as a business tax deduction, not all business expenses are deductible.

You cannot claim a deduction for:

  • entertainment expenses
  • traffic fines
  • private or domestic expenses, such as childcare fees or clothes for your family
  • expenses relating to earning income that is not assessable
  • the GST component of a purchase if you can claim it as a GST credit on your business activity statement.

A good way to check if you are unsure, is to remember that the expenses you are seeking to claim need to be directly related to your business earning assessable income.

How and When to Claim Business Tax Deductions

Business tax deductions are claimed in the respective entity’s tax return. For example, a company, trust or partnership would claim their deductions in the company, trust or partnership tax return. A sole trader can claim their deductions in the ‘Business and professional items’ schedule of their individual tax return.

The type of expense – operating expense or capital expense – determines when you can claim your deduction. Generally, you can claim:

  • operating expenses (such as office stationery and wages) in the year you incur them
  • capital expenses (such as machinery and equipment) over a longer period – however, under the current temporary full expensing rules, you may be eligible to claim an immediate deduction for the business use portion of depreciating assets you acquire for your business.

Get Expert Advice to Maximise Your Business Tax Deductions

As you can see, there are quite a number business expenses that are able to be claimed as business tax deductions. And getting it right can result in precious dollars back in your pocket. That is why it is important to seek expert tax advice to ensure that you are both maximising your claims to include all that you are eligible for, as well as not attempting to claim for things that aren’t able to be claimed.

The team of tax accountants at The Quinn Group can help you to legally maximise your business tax deductions. Submit an online enquiry or call us on + 61 2 9223 9166 to arrange an appointment to discuss your business tax deduction needs.