Claiming Business Expenses: A Complete Tax Return Guide
Do you know that correctly claiming your business expenses can actually reduce the amount of taxable income you pay? This, in turn, can have a huge impact on cash flow! If you operate as a sole trader, partnership, company, or trust, the Australian Taxation Office (ATO) dictates which business expense claims are allowable by law.
Important information on business tax deductions, how professional tax services can assist business owners (particularly those in the Adelaide area), and more is available below.
What Are Business Expenses?
Business expenses are the costs you incur in running your business that are directly related to earning your assessable income. These can include day-to-day operating costs, purchases of products or services, staff wages, and certain capital costs like equipment.
The general rule is straightforward:
- The expense must be related to your business activities.
- You must have appropriate records (receipts, invoices).
- You can’t claim expenses that are private or personal.
Types of Tax Deductions for Business
Here’s a breakdown of common business deductions you may be eligible to claim:
Operating and Day-to-Day Costs
These include expenses like:
- Staff salaries and wages
- Marketing and advertising
- Office supplies
- Repairs and maintenance
These costs generally can be deducted in the year they were incurred.
Business Travel
If travel is for business purposes — such as meetings, conferences, or client visits — you may be able to claim:
- Airfares, taxis, or car hire
- Accommodation
- Meals (overnight travel only)
Please note there is no deduction for any travel costs incurred for private purposes.
Depreciating Assets
Most capital items, like computers or machines, belong in the class of depreciable assets and, as such, will be depreciated over time. How these assets are depreciated and how long you can expect to be able to depreciate them for depends on two things: the type of asset you have and the type of business structure that you are using.
Home-Based Business Expenses
If you work from home, you can claim a portion of home office expenses such as electricity, internet, and phone, based on business use.
GST and Your Expense Claims
If your business is registered for the Goods and Services Tax (GST), there are different rules for claiming expense deductions:
- You generally cannot claim the GST component of an expense as a deduction if you can claim it as an input tax credit on your Business Activity Statement (BAS).
- If you are not registered for GST, then you can claim the total expense amount (including the GST component) as a deduction.
Record Keeping: A Must for ATO Compliance
To comply with ATO regulations, all expenses claimed as a tax deduction must have a supporting record (receipts, invoices, bank statements) that is kept for a minimum of five years from the date that you lodge your tax return. If you do not have these supporting records, then your expense claim is liable to be disallowed by the ATO.
How Tax Returns Work
When you submit your tax return, your taxable income will be calculated using the following formula:
Assessable income – allowable deductions = taxable income.
Depending on whether you’re a sole trader or a company, you’ll need to lodge deductions as part of your tax return (i.e., individual tax return for sole traders, tax return for companies).
Why Use a Tax Accountant or Tax Consultant?
Business tax deductions can be confusing due to constant changes in regulations, such as GST exclusions, different methods of calculating depreciation, and how to maintain records for tax purposes. A tax accountant or tax consultant can assist you with your company’s tax deductions in a variety of ways, including but not limited to:
- helping you maximise the tax deductions available on your business
- assisting you in avoiding errors that can trigger an audit by the ATO
- assisting with compliance with ATO regulations
- saving you the time spent on dealing with issues related to taxes
There are companies in Adelaide, such as TaxConsult Adelaide, that provide tailored services for business tax returns and tax planning for businesses, regardless of size.
FAQ
1. What business expenses can I claim on my tax return?
In general, you can claim any expense that directly relates to your business as a tax deduction, including (but not limited to) operating costs, travelling, wages, and depreciating assets, if you keep records of those expenses (receipts, invoices, etc.) and the expense is not for personal use.
2. Can I claim home office expenses?
Yes, if your work is conducted from home, you may claim a proportion of home office expenses (electricity, internet, phone) based on your business usage.
3. How does GST affect deductions?
If registered for GST, you can’t claim the GST portion of an expense as a deduction if you already claim it as a GST credit on your BAS.
4. What records do I need to keep?
You must keep all original receipts, invoices, and other documentation of the expenditure for a minimum of five (5) years in case the ATO requests them to support any claims you make on your tax return.
5. Do I need a tax accountant to claim business deductions?
No, but hiring a qualified tax professional will help ensure that any deductions that you’re entitled to claim are properly claimed and that your tax return is completed in compliance with relevant ATO regulations.