As a business owner, navigating the complex world of tax deductions is crucial for optimising your financial position.
Understanding what you can and cannot claim can significantly impact your bottom line. In this article, we’ll dive into the essentials of claiming business tax deductions, including some valuable tips and insights to help you make the most of these deductions.
The three golden rules
Let’s start with the fundamental principles that govern business tax deductions:
1. Direct relationship to income
The first golden rule states that an expense must be directly related to earning your business’ assessable income. This means that if an expense is incurred as part of your business operations and contributes to generating revenue, it’s likely deductible.
2. Proportional deductions for mixed use
If an expense has a mix of business and private use, you can only claim the portion directly attributable to your business. For instance, if you use your vehicle for both personal and business purposes, you can deduct the expenses associated only with your business-related mileage.
3. Maintain proper records
Keeping meticulous records is essential for substantiating your claims. Proper documentation ensures you have the evidence needed to support your deductions, should you ever face an audit.
Types of deductible expenses
Now, let’s explore some of the common expenses that businesses can claim deductions for:
1. Day-to-day operating expenses
These include essential expenses like office stationery, wages (provided you comply with PAYG withholding and reporting obligations), and other routine costs associated with running your business.
2. Capital expenses
Capital expenses typically involve long-term assets, such as machinery and equipment. These costs can be depreciated over the asset’s useful life, allowing you to claim deductions over several years. Alternatively, you may qualify for immediate deductions through temporary full expensing.
3. Special expenses
In today’s world, businesses face unique challenges, including COVID-19-related expenses such as hand sanitisers and protective barriers for staff. These expenses can also be deducted.
4. Superannuation contributions
Businesses can claim deductions for superannuation contributions made on behalf of their employees. It’s crucial to meet your reporting and payment obligations to take advantage of this deduction.
5. Expenses you can’t deduct
While it’s vital to claim eligible deductions, it’s equally important to understand what you can’t deduct. Private expenses, entertainment expenses, traffic fines, and costs related to earning tax-free income are not deductible.
Special tax deductions and bonuses
In addition to the standard deductions, there are special tax deductions and bonuses available for specific situations:
1. Technology investment boost
Businesses with an annual turnover of less than $50 million can claim an additional 20% tax deduction for eligible digital investments in 2022–23. This deduction aims to support digital operations and the digitisation of business processes, with a capped bonus of $20,000.
Learn more: Small business technology investment boost explained
2. Bonus deduction for energy efficiency
Businesses can claim a 20% bonus deduction for eligible expenditures that promote electrification and energy-efficient upgrades. This applies to assets used between 1 July 2023 and 30 June 2024.
3. Small business skills and training boost
Qualifying businesses can claim a 20% tax deduction for external training courses delivered to employees by registered training providers in 2022–23 and 2023–24. This can enhance employee skills and productivity, benefiting your business in the long run.
4. Digital games tax offset (DGTO)
Companies involved in digital game development may be eligible for the DGTO, allowing them to claim 30% of their qualifying Australian development expenditure (QADE). To qualify, your company must meet specific criteria, including obtaining a certificate from the Minister for the Arts.
5. Changes to fuel tax credit rates
If your business involves fuel usage, be aware of changes in fuel tax credit rates. These rates can fluctuate, so it’s crucial to stay up to date with the latest information and use the correct rates when preparing your Business Activity Statement (BAS).
Seeking professional assistance
Claiming business tax deductions requires careful consideration of your expenses, adherence to the three golden rules, and diligent record-keeping. By following these guidelines and staying informed about special deductions and bonuses, you can optimise your business’s financial health while ensuring compliance with tax regulations. If you ever find yourself unsure or need guidance, don’t hesitate to consult our KMT tax adviser who can help you navigate the intricate world of tax deductions effectively.
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 adviser: Chrisanthe Lekatis is renowned for her expertise in management accounting, virtual CFO services, and top-tier business advice. Chrisanthe’s passion lies in process improvement, as she combines her analytical prowess with adaptability to explore avenues for business sustainability. By deeply understanding her clients’ businesses and goals, Chrisanthe empowers management with tailored strategies for success, streamlining processes to achieve efficient and cost-effective outcomes. 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.
