Businesses in Australia are entitled to tax deductions for costs incurred in running the business, provided these expenses are not of a private, domestic or capital nature.
What does tax deductible mean?
In your tax return, you can claim most business expenses as tax deductions to reduce your taxable income. The ATO calculates your taxable income using the following formula:
Assessable income (income subject to tax) – tax deductions = taxable income (the amount you pay tax on)
You won’t be able to claim on private or domestic expenses such as childcare fees, clothes for your family, money you earn from a hobby, parking fines or entertainment.
What you can claim
Generally, you can claim operating expenses (such as office stationery and wages) in the year you incur them, as well as capital expenses (such as machinery and equipment), over a longer period of time. Most costs you incur in running your business can be claimed as a tax deduction, as long as they directly relate to earning your income.
You may be able to claim deductions for your business if your business:
- has motor vehicle expenses
- uses diesel fuel
- is based at your home
- has website expenses
- has travel expenses
- uses plant equipment, such as machinery, tools or computers
You can also claim the cost of allowable repairs and maintenance to your place of business. This can include painting, maintaining plumbing and repairing machinery. To repair something means to fix defects, including renewing parts. It does not include total reconstruction. Businesses may be able to claim on travel expenses for relocating employees as well as some of the costs that are incurred during a business relocation.
How to claim
Keep paper or electronic records of your business expenses for five years and ensure these are easily accessible. Speak to your business’s accountant for more information on how to make tax deductions and what your business can claim.
For more information, visit the ATO’s website.