As anyone who has lodged a tax return will know, deductions can be a lifesaver when reducing your tax bill. But with so many different deductions available, knowing which ones you’re eligible for can be challenging.
This guide will walk you through some of the most common deductions that Australian business owners can claim, so you can be sure you’re getting the most out of your tax return.
- 1 How Do Tax Deductions Work?
- 2 What Eligible Tax Deductions Can You Claim to Reduce Your Taxable Income?
- 2.1 1. Mobile Phone Costs
- 2.2 2. Work-Related Insurance Premiums
- 2.3 3. Internet Expenses
- 2.4 4. Registration, Licences and Subscription Fees
- 2.5 5. Claim Self-Education Expenses
- 2.6 6. Tools and Equipment
- 2.7 7. Tax Preparation Fees
- 2.8 8. Work-Related Clothing Expenses
- 2.9 9. Charity Expenses
- 2.10 10. Home Office Expenses
- 2.11 11. Vehicle and Business Travel Expenses
- 2.12 12. Bad Debts
- 2.13 13. Marketing Costs
- 2.14 14. Fringe Benefits Tax
- 2.15 15. Non-Entertainment Gifts
- 2.16 16. Loan and Mortgage Interest
- 2.17 17. Sunscreen or Make-Up
- 2.18 18. General Ongoing Operational Expenses
- 3 Key Takeaways
How Do Tax Deductions Work?
In Australia, you can deduct certain expenses from your assessable income to lower the tax you need to pay. Tax deductions can apply to a wide range of expenses, including operating, self-education, and capital expenses.
To claim tax deductions, you must have records to prove it and lodge a tax return with the Australian Taxation Office (ATO). When lodging, you will need to list all of your deductions and calculate your final taxable income.
The biggest misunderstanding of business expenses concerning tax deductions is how much you potentially get back. As a business, you only receive the tax portion of your business expenses back. This is usually 25% for the majority of small businesses that are set up as company entities.
Let’s say that XYZ Business earns $220,000 in the current financial year and retains business profits of $200,000—$20,000 of which is attributed to operating and capital expenses that the business can claim as a tax deduction:
Business Income: $220,000
Deductions for taxes ($20,000)
Tax Payable (based on 25%): $50,000
Based on claiming $20,000 worth of business tax deductions, you can reduce your tax bill by $5,000, assuming the 25% company tax rate.
What Eligible Tax Deductions Can You Claim to Reduce Your Taxable Income?
With all the information above in mind, let’s get stuck into what you came here for – the deductions that can help you save on your taxable income.
1. Mobile Phone Costs
You can claim a ‘business use percentage’ of your mobile phone as a tax deduction. You’ll need to keep a journal for at least four weeks, and then note how much time you spent using the phone for business purposes. From here, you can calculate the percentage of business use.
2. Work-Related Insurance Premiums
In most cases, especially if your business employs staff, you’ll need to take out a range of business insurance premiums such as workers’ compensation insurance, public liability insurance, and asset insurance.
The ATO allows business owners to claim the insurance costs related to the protection of business assets as a tax deduction. Common insurance tax deductions include premiums for car, building, or liability insurance.
3. Internet Expenses
Similar to claiming a deduction for your phone costs, if you can calculate the percentage that reasonably relates to work use, you can claim a portion of your internet usage. To claim more than $50, you’ll need to keep records for a four-week representative period in each income year.
4. Registration, Licences and Subscription Fees
You’re allowed to claim any periodical subscription fees that you incur as part of running your business. For example, if you use accounting software such as Xero or MYOB, the expense of running that software will be tax-deductible.
5. Claim Self-Education Expenses
If your self-education relates to your current work activities, you may claim a tax deduction on this expense.
6. Tools and Equipment
Where you purchase various tools and equipment for specific purposes, you can claim an immediate tax deduction for your business’s costs. And if the value of the items exceeds $300, you can also submit a depreciation claim for the decline in its value.
To learn more about tax depreciation, you may find our article on the 5 Simple Ways to Reduce Taxable Income for Small Businesses insightful, as we discuss the benefits of claiming small business depreciation.
7. Tax Preparation Fees
If you choose to engage the services of a tax agent for guidance as to how to manage your tax obligations throughout the year or to help you prepare for your tax return, you can claim these fees as a tax deduction. You must, however, have a supporting invoice or evidence of the costs to support the deduction claim.
8. Work-Related Clothing Expenses
If you provide uniforms to your staff and/or incur laundry expenses on their behalf, you can claim a tax deduction for the expenses you incur.
The ATO proposes relatively specific requirements for this claim, so you’ll need to provide written evidence for the uniform purchase and a representative period for one for cleaning costs, if you are claiming an amount greater than $150 and your total claim for work-related expenses exceeds $300.
9. Charity Expenses
Any donations over $2 to a “Deductible Gift Recipient Organisation” may be tax deductible. As with all the other expenses, you’ll need to keep proof of receipt of the donation as evidence for your claim.
10. Home Office Expenses
If you regularly work from home, you can claim based on running expenses, equipment, or occupancy expenses.
For more information about home office expenses, check out our essential guide.
11. Vehicle and Business Travel Expenses
You may claim travel and vehicle expenses you incur while performing business duties. Generally, however, you won’t be allowed to claim for normal trips between home and work.
12. Bad Debts
If you cannot retrieve debt from one or more of your customer’s accounts, you can possibly write these debts off and reduce your assessable income for tax purposes. But, the ATO requires you to follow several steps before writing off the bad debt. This ensures that the bad debt is actually bad debt, not merely a question.
The question of whether a debt is a bad debt depends on each individual case. Your accountant can assist you with this. If eligible, you can claim this as a tax deduction against your assessable income.
13. Marketing Costs
These may include costs associated with advertising, sponsorship, public relations, digital media (such as websites, social platforms, and YouTube) and any upkeep associated with these.
14. Fringe Benefits Tax
You can claim all the costs associated with offering fringe benefits to your employees as a tax deduction.
15. Non-Entertainment Gifts
Where gifts have a value of $300 or less (GST inclusive), fringe benefits tax (FBT) won’t be payable, and you can claim a tax deduction for the expense. Note that the ATO considers events such as Christmas parties as entertainment expenditures and they are therefore non-tax-deductible.
16. Loan and Mortgage Interest
Any interest you incur from a loan is a tax-deductible expense. You can claim a deduction for the interest on any loans taken out for the purpose of purchasing land, property, depreciating assets, repairs, or renovations.
17. Sunscreen or Make-Up
Beyond the standard tax-deductible expenses, the ATO has included some deductions for expenses you may not have realised. For example, if your job requires you to be outdoors or to present to a
If you meet a certain standard, then you can claim the expenses you incur in achieving that.
18. General Ongoing Operational Expenses
Some examples of work-related deductions you can claim for your business operational expenses include:
- Purchase of trading stock, including delivery charges
- Bank fees and charges
- Stationery expenses
- Transport and freight costs
- Waste removal and recycling expenses
- Utility expenses
- Rental or leasing expenses
- Small-value items costing $100 or less
The ATO allows small business owners and individuals to claim deductions for expenses incurred, which you should consider taking advantage of when reducing your assessable income come tax time. While this list does not cover all expenses, we hope there is something in here that you may not have considered a potential tax-deductible claim.
But remember, it’s important to remember that you need to keep records of all your expenses. The ATO is becoming increasingly focused on cracking down on erroneous claims.
If you’re uncertain about a particular claim, we always recommend speaking to a qualified
accountant to get professional advice.
At Box Advisory Services, our small team of experienced accountants can help you make the most of these tax deductions by strategising a tailor-made tax-minimisation plan.
To find out how we can help you, book a free consultation with us to assess your situation.