As a business owner, you must understand what business expenses you can claim in Australia to save more on taxes.
What can you claim?
You can claim a tax deduction for most business expenses you incur in carrying on your business if they are related to earning your assessable income. Types of business expenses you may be able to claim deductions for include:
- Certain capital expenses, such as depreciation of assets like equipment and machinery used in your business.
- Day-to-day operating expenses.
- Purchases of services or products for your business.
The amount of your deduction and when you can claim it will depend on:
- The type of expense (for instance, certain capital expenditures are deductible over time)
- Whether it has any domestic or private purpose for which you must minimise your deduction
- Some expenses, including fines, are not deductible.
There are 3 golden rules for what the ATO accepts as a valid business deduction:
- The expense should have been for your business, be available as an allowable deduction, and not be for personal use.
- If the expense is for a mix of personal and business use, you can only claim the portion that is used for your business.
- You need to have records to prove it.
You are not allowed to claim the GST component of your expenses as a deduction if you can claim it as a GST credit on your business activity statement. If you find it difficult to claim potential deductions, you can reach out to a professional tax accountant Melbourne.
You are allowed to claim deductions for expenses related to protecting staff from safety hazards involved in performing their duties. For instance, infection from transmissible diseases. This may include sneeze or cough guards, hand sanitiser, gloves, face masks, antibacterial wipes, and other cleaning supplies that are used for business purposes.
What you are not allowed to claim
Some expenses are not deductible, such as:
- Entertainment expenses, other than those you provide as an entertainment-related fringe benefit
- Traffic fines
- Domestic or private expenses, such as clothes for your family or childcare fees
- Expenses related to earning income that is not assessable
- Payments for which you have not met your reporting or PAYG withholding obligations
- The GST component of a purchase, if you can claim it as a GST credit on your business activity statement
- Shortfall interest charge or general interest charge incurred on or after 1 July 2025 – if you are an entity with a substituted accounting period, these changes apply from your next accounting period commencing after 1 July 2025.
You generally are not allowed to claim a deduction for the cost of capital assets that are dealt with under the capital gains tax rules, such as the land your business premises are on. Some exceptions apply for capital works, plant and certain expenditure of primary producers on land improvements. If you earn personal services income and the PSI rules apply, the PSI rules will restrict the deductions you can claim in relation to your PSI. For more information on claimable business expenses, you can reach out to an accountant in your area by searching online for ‘best accountant near me Melbourne’.
When can you claim your deduction?
The type of expense – capital expense or operating expense – determines when you can claim your deduction. You can claim:
- Operating expenses in the year you incur them.
- Certain capital expenses over a longer period; however, you may qualify to claim an immediate deduction for the business use portion of depreciating assets you obtain for your business if you are a small business entity and choose to apply the simplified depreciation rules.
- Other capital expenses may be immediately deductible or claimed over time.
You incur an expense when you have a legal obligation to make payments for the services or goods. An invoice is not mandatory for an expense to have been incurred, but you need a record of the expense. If you use an item in your business for only part of a year, you need to limit your claim to the period it was used for the business.
Conclusion
The blog shares what business expenses can be claimed as a deduction in Australia. For more information and to save money on taxes, you can get in touch with Reliable Melbourne Accountants.