Navigating the evolving landscape of tax deductions is essential for business owners to optimise financial outcomes and ensure compliance. Maximising your tax benefits requires an understanding of which expenses are eligible for deductions and how these deductions can positively impact your bottom line. In this blog, we’ll cover key guidelines and updates on special tax deductions and bonuses to help you make informed financial decisions.
The three golden rules
To effectively manage tax deductions, consider the following principles:
1. Direct relationship to income
To qualify for a deduction, an expense must directly contribute to generating assessable income for your business. For instance, costs associated with promoting your products or services are generally deductible.
2. Proportional deductions for mixed use
If an expense serves both business and personal purposes, you can only claim the portion that is directly related to your business. For example, if you use a vehicle for both business and personal activities, only the expenses incurred for business use can be deducted.
3. Maintain accurate records
Proper record-keeping is crucial to substantiate your claims. By keeping accurate and detailed records, you ensure that you are prepared in the event of an audit.
Common types of deductible expenses
To assist business owners in identifying what they can claim, here are some of the most common deductible expenses:
1. Day-to-day operating costs
These include essential expenses such as office supplies and employee wages, (provided you comply with PAYG withholding and reporting obligations). Such routine costs are crucial to the daily operations of your business.
2. Capital expenses
For long-term assets such as machinery or equipment, you have the option to depreciate them over their useful life or, in certain circumstances, claim an immediate deduction through temporary full expensing rules.
3. Special expenses
In the current business environment, expenses related to maintaining a COVID-safe workplace—such as hygiene measures and protective equipment—are deductible as necessary business costs.
4. Superannuation contributions
Businesses can claim deductions for superannuation contributions made on behalf of their employees. Ensure that you meet your reporting and payment obligations to take advantage of this benefit.
5. Non-deductible expenses
It’s equally important to be aware of expenses that cannot be claimed, such as private expenses, entertainment costs, traffic fines, and expenses associated with earning tax-free income.
Special deductions and bonuses for 2024-25
Special tax deductions and bonuses are available for the 2024-25 financial year, presenting opportunities to improve business efficiency and reduce tax liabilities. Here are some key options to consider:
1. Technology investment boost
Businesses with an annual turnover of less than $50 million can benefit from an additional 20% deduction on eligible digital investments. This initiative, which aims to support digital transformation, offers a maximum bonus cap of $20,000 in deductions. Consider investing in technology during the holiday season to boost year-end productivity.
2. Energy efficiency bonus deduction
A 20% bonus deduction is available for businesses investing in eligible electrification and energy-efficient upgrades on assets used between 1 July 2024 and 30 June 2025.
3. Small business skills and training boost
Qualifying small businesses can claim a 20% deduction on eligible external training courses provided by registered training providers. This incentive aims to enhance employee skills and productivity during the 2024-25 financial year.
4. Digital games tax offset (DGTO)
If your business is involved in digital game development, you may qualify for a 30% tax offset on qualifying Australian development expenditure (QADE). To be eligible, specific criteria must be met, including obtaining certification from the Minister for the Arts.
5. Updates to fuel tax credits
If your business uses fuel, it is essential to stay updated on changes in fuel tax credit rates. Correctly applying these rates when preparing your Business Activity Statement (BAS) is crucial for accurate tax reporting.
Consulting a professional for guidance
By understanding your business’s eligible deductions and leveraging these opportunities, you can maintain financial security and maximise savings. Contact us today to learn more about how we can support your business and ensure compliance with the latest tax updates from the ATO.
About our advisers:
Michael Fox has been dedicated to his clients’ success, devising comprehensive wealth strategies for personal and business growth for over four decades. With extensive expertise in business governance and family business succession, Michael specialises in empowering emerging businesses and family enterprises by fostering renewal, enhancing value, and smoothing transitions to the next generation. Please do not hesitate to reach out if you need assistance.
Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. She empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. Her commitment to building trust and lasting relationships goes beyond professional excellence; it’s a personal ethos. By actively listening and understanding her clients’ businesses and goals, Chrisanthe thrives on collaborative efforts to navigate challenges and collectively achieve their aspirations. Please do not hesitate to reach out if you need assistance.
This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek tax advice from a qualified accountant at KMT Partners. Information is current at the date of issue and may change.
