Understand which business expenses can be claimed as tax deductions.
What you can claim
You can claim a tax deduction for most expenses you incur in carrying on your business if they are directly related to earning your assessable income.
Types of business expenses you may be able to claim deductions for include:
- day-to-day operating expenses
- purchases of products or services for your business
- certain capital expenses, such as the cost of depreciating assets like machinery and equipment used in your business.
The amount of your deduction and when you can claim it will depend on the type of expense (for example certain capital expenditures are deductible over time) and whether it has any private or domestic purpose for which you must reduce your deduction. Also, some expenses are not deductible (for example fines).
There are 3 golden rules for what we accept as a valid business deduction:
- The expense must have been for your business, available as an allowable deduction and not for private use.
- If the expense is for a mix of business and private use, you can only claim the portion that is used for your business.
- You must have records to prove it.
You can also claim deductions for expenses related to protecting staff from safety hazards involved in performing their duties. For example, infection from transmissible diseases. This may include hand sanitiser, sneeze or cough guards, face masks, gloves, other personal protective equipment, antibacterial wipes and other cleaning supplies that are used for business purposes.
What you can’t claim
There are some expenses that are not deductible, such as:
- entertainment expenses, other than those you provide as a fringe benefit
- traffic fines
- private or domestic expenses, such as childcare fees or clothes for your family
- expenses relating to earning income that is not assessable
- payments for which you have not met your PAYG withholding or reporting obligations – non-compliant payments
- the GST component of a purchase if are registered for GST and you can claim it as a GST credit on your business activity statement.
You generally cannot 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 improvements to land.Your deductions may be limited for expenses incurred in relation to personal services income (PSI) if the PSI rules apply to that income.
Want to know which expenses you can claim as tax deductions? Explore the different types of deductible expenses by following the links below.
Deductions for motor vehicle expenses
As a business owner, you can claim a tax deduction for expenses for motor vehicles used in running your business.
Deductions for home-based business expenses
How to claim tax deductions for home-based business expenses if you operate some or all of your business from home.
Deductions for business travel expenses
You can claim a tax deduction for expenses you incur travelling for your business.
Deductions for digital product expenses
As a business owner, you can claim a tax deduction for the cost of digital products used in running your business.
Deductions for salaries, wages and super contributions
How business owners can claim a tax deduction for employee salaries, wages and super contributions.
Deductions for repairs, maintenance and replacement expenses
Check what deductions your business can claim for repairs, maintenance, and replacement expenses.
Deductions for other operating expenses
Operating expenses for the everyday running of businesses are generally deductible in the year you pay for them.
Deductions for depreciating assets and capital expenses
When businesses can claim tax deductions for depreciating assets and other capital expenses.
Deductions for carbon sink forest expenses
Businesses can claim a deduction for expenses incurred establishing trees in a carbon sink forest.
Deductions for unrecoverable income (bad debts)
Information about income that cannot be recovered (or a ‘bad debt’) and how to write off a debt as bad.
*This above information was taken from ato.gov.au. For more information click here
