Tax Deductible Business Expense List

Before setting up a business or company of any size you should consult with a tax professional. This will ensure that from day one you are aware of all your liabilities as well as any expenses you will be able to claim. A company is more expensive to set up therefore your company tax deductible expenses will generally be higher than those of a small business. It is worth familiarising yourself with the different types of business structures too.

When you submit your tax return you can claim a tax deduction for most expenses that are incurred from running your business, but only as long as they are directly related to the business’s income. Your tax professional will be able to provide all the relevant information you will need.

The Australian Tax Office (ATO) calculates your taxable income using this formula:

• Assessable income – tax deductions = taxable income
• The majority of the income you receive from running your business is ‘assessable income’ – income that is subject to tax.

If you claim business tax deductions, which will reduce the tax you will be required to pay, you need to keep accurate records to verify what you are claiming. Under tax law, your records must clearly explain all transactions and be:

• in writing, either on paper or electronically
• in English, or in a form that we can readily access and convert into English
• kept for five years (although some records need to be kept longer).

HOW TO CLAIM YOUR TAX DEDUCTION

How you claim your business expenses will depend on the type of business structure you have.

If you are a:

• Sole trader – you claim the deductions in your individual tax return.
• Partnership – you can claim the deductions in your partnership tax return.
• Trust – you claim the deductions in your trust tax return.
• Company – you claim the deductions in your company tax return.

When you can claim your deduction

The type of expense you are claiming – operating expense or capital expense – will determine when you can claim your deduction.

In general, you can claim:

• operating expenses (such as office stationery, rent for premises, purchase of stock and staff wages) in the year you incur them.
• capital expenses (such as machinery, buildings, and equipment) over a longer period.

What you can claim

To be able to claim a business expense the following applies:

1. The expense must relate wholly to your business and not to any private use.
2. If the expense you are claiming 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 the expense is valid.

For example, if you buy a computer and you only use it for your business, you can claim 100% of the full purchase price as a business expense. However, if you only use the computer 50% of the time for your business and 50% of the time for private use, you are only able to claim 50% of the amount as an expense.

NB: You cannot claim the GST component of the purchase price as an expense if you are able to claim it as a GST credit on your business activity statement.

Deductible Expenses

Staff salaries and super contributions

As a business owner, you can generally claim tax deductions for:

• the salaries and wages you pay to your employees.
• the super contributions you make to a complying super fund or retirement savings account (RSA) for your employees and for certain contractors. 
• Salary and wage expenses are a type of operating expense (sometimes called working or revenue expense).

Repairs, maintenance, and replacement expenses

You can claim a tax deduction for expenses that relate to repairs, maintenance or replacement of machinery, tools, or your business premises, as long as the expenses are not capital expenses.

A capital expense is money spent to purchase assets like plant and equipment.

Business Travel Expenses

As a business owner you can claim tax deductions for expenses incurred if you or your employee are traveling for business purposes.

Keeping a travel diary is:

• compulsory for sole traders and partners in a partnership to record overnight business travel expenses.
• highly recommended for everyone else.

Vehicle Expenses

If you operate your business as a company or trust, you can also claim for motor vehicles provided to an employee or their associate as part of their terms of employment.

For tax purposes cars are defined as motor vehicles (including four-wheel drives) and designed to carry both:

• a load that is less than one tonne
• fewer than nine passengers.

Other vehicles include:

• motorcycles
• vehicles designed to carry either –
• one tonne or more (such as a utility truck or panel van)
• nine passengers or more (such as a minivan).

Every motor vehicle must be owned by the business or leased or under a finance agreement.

Vehicle expenses you can claim are:

• fuel and oil
• repairs and servicing
• interest on a motor vehicle loan
• lease payments
• insurance cover premiums
• registration
• depreciation (decline in value).

If a motor vehicle is used for both business and private use, you must be able to clearly calculate the percentage you are claiming as business use. You cannot claim the percentage that is for your private use. This is an area where errors are often made.

A logbook or a diary to record the purpose for travel – business or private – will identify this percentage. You can also use the ‘cents per kilometre’ method.

Other operating expenses

Operating expenses are the expenses you incur in the everyday running of your business. These include office stationery, computer consumables, rent of premises and the purchase of trading stock. These expenses are sometimes called working or revenue expenses.

You can generally claim a tax deduction for most operating expenses in the same income year that you incur them, so ensure you keep accurate and complete records of these expenses as they occur.

• You can only claim the business portion of these expenses if they relate to both business and private use, for example mobile phone calls.

Depreciating Assets and other Capital Expenses

Businesses can generally claim a tax deduction for capital expenses over a period of time.

A capital expense is either:

• both the amount you paid for the asset, and the costs that were accrued transporting and installing it.
• an expense associated with establishing, replacing, or purchasing your business.

Tax deductions for bad debts

As a business owner, you may be able to claim a deduction for income that cannot be recovered from a customer or debtor. This unrecoverable income is also known as a ‘bad debt’.

Home-based business expenses

If you operate some or all of your business from your home, you may be able to claim expenses in the following categories:

• occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums)
• running expenses (such as electricity, phone, decline in value of plant and equipment, furniture and furnishing repairs, cleaning)
• the expenses of motor vehicle trips between your home and other locations if the travel is for business purposes.

As with anything related to your taxes, and in this case, the business expenses you can claim, keeping accurate and up-to-date records is absolutely crucial as this will support the reduction of taxes you pay.

Should you require any additional assistance please don’t hesitate to contact us.

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Disclaimer: the information contained in this article is for general information purposes only and in no event will Factor1 or its affiliated entities be held liable for any loss or damage caused through the use of this information. Independent advice is recommended for all individual circumstances. Data and specifications included correct as at May 2021.