If you are a business owner, you might be looking for what business expenses can be claimed as tax deductions. For this, you need to understand what deductions you are allowed to claim, what deductions you can’t claim, and how you can apportion expenses between business and personal. You’ll get answers to all these questions in this blog. Let’s start:
What business expenses can be claimed as tax deductions?
You are allowed to claim a tax deduction for most expenses incurred while running your business if they are directly associated with earning your assessable income. Here are different types of business expenses you can claim as tax deductions:
- Day-to-day operating expenses
- Purchases of services or products for your business
- Certain capital expenses, such as the cost of depreciating assets like equipment and machinery used in your business.
The amount of your deduction and when you are allowed to claim it will completely depend on the type of expense and whether it has any domestic or personal use for which you must reduce your deduction. By engaging a professional tax return accountant, you will know what type of deductions your business can claim.
There are 3 golden rules for what the ATO accepts as a valid business deduction:
- The expense should be incurred for your business, and expenses should not be incurred for personal use.
- If the expense is for a mix of personal and business use, you can only claim the part 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. It would be worthwhile to choose professional accounting services to ensure you have separate expenses for business and personal use.
You can also claim deductions for expenses incurred to protect staff from safety hazards involved in performing their duties.
What deductions can you not claim?
Some expenses you are not allowed to claim, such as:
- Entertainment expenses, other than those you offer as a fringe benefit
- Traffic fines
- Domestic or personal 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 satisfied your PAYG withholding or reporting requirements.
Generally, you are not allowed to claim a deduction for the cost of capital assets that are dealt with under the capital gains tax rules. Some exceptions apply for capital works, certain expenditure of primary producers on improvements to land.
How can you apportion for expenses that have both private and business purposes?
You won’t be able to claim a deduction for an expense to the extent it is incurred for domestic or personal use. How you apportion depends on how much of the expense relates to your business and the type of expense.
- If you have a home-based business and claim occupancy expenses, you’ll need to apportion them based on floor area and the time your home is used for your business. For running expenses, you may use different methods based on your circumstances.
- There are different methods that you can use to calculate deductions for your motor vehicle expenses based on your business structure and the type of vehicle you are claiming them for.
- For other expenses, you will apportion depending on the personal and business use of the asset or service obtained. This must be done on a reasonable basis that reflects any personal use of the asset or use of the expense.
- You are required to keep records to show the way you apportion your expenses. For instance, if your expenses are related to your laptop repair, which you only use for your business, you are allowed to claim a deduction for the full cost of the repair. However, if you use the laptop 50% for business and 50% for personal purposes, you can only claim a deduction for 50% of the cost of the repair.
For more information and apportioning business and personal expenses, you can reach out to accountants. If you want an accountant near you in Melbourne, you can search online for the ‘best accountant near me Melbourne’.
Conclusion
The blog shares information on ways of apportioning expenses between business and personal purposes. To ensure you are claiming deductions only for business expenses, you can get in touch with a Reliable Melbourne Accountant.