When it comes to business tax deductions, there’s a lot that busy business owners need to think about.
So to help you out, we’ve pulled together this simple checklist of business tax deductions you should be considering. This should help you understand how to make the most of the money you spend in your business, and strategies to put in place to reduce your taxable income.
Ready to see how your business can minimise your tax? Contact a Liston Newton Advisory business tax specialist today.
What is a business tax deduction?
In its simplest definition, business tax deductions are expenses that are incurred as you operate your business, that’s directly related to the earning of your assessable income. These expenses are considered as business expenses, and the amount can therefore be subtracted from your business’ assessable income, reducing the amount of tax you pay.
If you’re unsure, the ATO has a logical quasi-framework you can use to determine whether or not your expense is a valid business deduction.
- The expense was incurred for business use, rather than private use.
- When expenses are incurred that can be considered a mix of business and private use, you’re only allowed to claim the business portion.
- Records of all expenses must be able to be provided.
As such, a robust strategy to minimise the amount of tax you pay centres around maximising your business deductions.
Within reason, of course. Liston Newton Advisory is of the view that you shouldn’t just spend money to save on tax—only incur those costs that are necessary to operate your business.
So let’s look at the types of expenses you can look claiming, both when preparing your tax return, and year-round.
Minimise your tax with these 9 business tax deductions
Focus on business operating expenses
While the most obvious strategy, many business expenses can often fly under the radar as tax deductions. Remember: all expenses directly incurred in the operation of your business can be claimed as a tax deduction. So as well as purchases, training and development expenses, and rent, you can also look into claiming things like business advertising, utility costs, and insurances.
New equipment can be written off immediately
Current ‘temporary full expensing’ legislation means that businesses with a turnover of less than $5 million can claim a 100% tax write-off on any assets purchased that financial year. This means that instead of waiting to claim depreciation, you can claim the full 100% at the asset’s time of purchase.
As a business owner, you can claim super contributions
When your business is structured correctly, you may be able to claim your concessional super contributions as a tax deduction, up to a cap of $25k. However, make sure you speak to a qualified superannuation adviser to ensure you’re undertaking this in the correct manner.
You can rollover any unused concessional cap from the previous year, too
From 2019-20 onwards, legislation was passed allowing any unused portion of your concessional super contributions allowance from the previous five years to be carried forward.
For example, if made $20k in concessional contributions the previous financial year, you could carry the remaining $5k of your cap forward to the current financial year. You’re eligible as long as your super balance is less than $500k on 30 June the previous financial year.
Claim your home-based business expenses
If you run your business from home, or even when you work from home occasionally, you may be able to claim some of these expenses too. This includes things like:
- Running expenses, such as electricity, internet, and decline in value of office equipment, and
- Occupation expenses, such as rent paid, council rates, or property insurance.
There are a few different methods of claiming work-from-home expenses as a tax deduction.
You can claim some travel expenses
While travelling to and from the office isn’t considered a tax deduction, travelling specifically for business purposes is. Deductions can be claimed if your trip, or a portion of it, is for business purposes.
If the whole of your trip was business-related, you can claim the entirety as a tax deduction. If just a portion was, you can apportion the business-related expenses accordingly.
When buying a vehicle through your business, you can claim the GST credit and the ‘temporary full expensing’ rules at the same time. This means that 100% of the vehicle cost are tax-deductible (up to a limit of $60,733 for the 2021-22 financial year).
The operating expenses, however, are a little more tedious. You can only claim those expenses that are incurred in the undertaking of your business, which can be determined based on a logbook percentage. On top of this, fringe benefits tax also needs to be taken into account.
It can get complicated, so get in touch with us prior to purchasing a vehicle through your business, to ensure you can optimise your business tax deduction.
Write off bad debts
In the general running of your business, it’s not uncommon that you encounter a client that doesn’t pay their invoice or bill. Depending on how your business is structured, this may be possible to be written off as a bad debt. Writing off a bad debt allows you to effectively claim an expense for the amount of income shown on the invoice.
It’s a fair system, and means that you don’t pay tax on income that you never saw. However, you must be able to prove that this is bad debt, and you’ve done everything reasonably possible to chase it up.
Pay salary or wages to the business owner
When we look at your overall tax position, wherever possible we try to ensure that your personal tax levels don’t exceed the company tax rate. We also want to make sure the company tax rate doesn’t exceed the personal tax rate.
To achieve this, it’s important to undertake a plan that allows you to pay wages in line with employment contracts, in order to deliver the best possible tax result. Your Liston Newton adviser can walk you through how this could look for your business.
What can’t I claim as a business tax deduction?
As stated earlier, there are some clear criteria around what you can claim as a business tax deduction in Australia. This means that some common expenses are not tax-deductible, including:
- Entertainment expenses
- Speeding fines incurred when driving a company vehicle
- Expenses incurred in domestic duties, such as childcare fees, grocery costs, or family clothes
- Expenses from non-assessable income. This includes things like hobbies, or advertising fees for private asset sales
- Also, if you claim a GST credit on a purchase in your business activity statement, you’re not able to then claim the GST component in the purchase as a tax deduction.
The final word
At Liston Newton Advisory, we work with you to ensure that you are maximising your business tax deductions to ensure your personal and business finances are as tax-effective as possible. We do this by reviewing your current tax structure and taking advantage of all possible tax deduction strategies available to you.
As part of our tax-effective strategy, we meet with you every year to undertake a tax planning session, which covers both short- and long-term planning.
Our goal is to ensure that you stay on top of your tax, and put plans in place to take advantage of strategies that deliver the most tax-effective result for your business.