As a small business owner (i.e. a business with an annual turnover of less than $2 million), trying to remain competitive and keep a healthy bottom line can be challenging. That’s why it’s important you’re claiming deductions for all the costs and expenses you can at tax time. Simply put, the Australian Federal Government gives the small business sector a break on a vast range of tax matters. To help you avoid over-claiming and ensure you’re claiming all you should be, we’ve outlined some of small business tax deductions.
Home office expenses
More and more small businesses operate out of their own homes, but many fail to claim for the business use of their home. You can usually claim some of your interest repayments, insurance, and even a portion of your everyday expenses including gas and electricity, phone, internet and cleaning.
Software
If you use any software in your business – whether it’s a cloud-based app or a desktop software tool – you can claim this expense, provided you have proof of your payment. To claim the full deduction, the software has to be used in the business and if there has been personal use, the deduction needs to be pro-rated to reflect this.
Banking and accounting fees
Costs associated with accounting, book-keeping or business activity statement preparation, as well as bank fees and charges related to your business account, and any interest owing on business loans or a business overdraft, can be claimed.
Advertising and marketing
Any money spent promoting your business, either through advertising or marketing efforts, can be claimed as an expense.
Start-up costs
Remember to factor in any expenses you may have had when starting up your business, before you’ve even made any sales.
Staff costs
Any wages, salaries or bonuses arising before the end of the financial year – even if payment hasn’t yet been made – can be deducted.
Vehicle expenses
Expenses related to the use of your vehicle for business purposes – whether it’s a loaned vehicle or owned – can be claimed.
Business travel
The cost of your accommodation, car hire or flights can be claimed as a business travel expense. Be sure to keep note of where, when and how long you travelled for, as well as what portion of the travel was personal and thus not deductible.
Contributions to Super
If you’ve made contributions to your own super fund, or you’ve made contributions to an employee’s fund as a business owner, you can claim a deduction.
Bad debts
Provided it was included in your assessable income (the money coming into your business) in the current or a previous year’s tax return, any bad debts or money you owe is an allowable deduction.
Charitable Contributions
Large or small donations greater than $2 can be claimed on your tax return, but remember to keep receipts as proof of payment and ensure payments are made out to a deductible gift recipient charity.
Gifts
Provided it really is a gift in which you received no payment or benefit, you may be able to claim for any business-related gift giving. Items like raffles, art union tickets, chocolates, pens and fundraising tickets cannot be claimed.
Prepaid expenses
You can prepay your expenses up to a year in advance and claim these at the end of the financial year. Some of the expenses you could prepay include repairs to business assets, insurance, phone, rent, internet and even business travel expenses.
A warning to small business owners
Earlier this month (July 2017), the Australia Tax Office issued a strong warning to individuals and small business owners making excessive tax deductions, saying it was determined to minimise the tax gap as much as possible. It’s vital you seek professional advice from a tax advisor, accountant or book-keeper if you have any concerns or you’re unsure about what you can and cannot claim for.
You also need to keep all financial records for five years – either paper-based or electronic - including all sales receipts, expense invoices, credit card and bank statements, employee records, vehicle records and asset purchases.
Resources:
https://www.hrblock.com.au/tax-tips/small-business-tax-guide
https://www.business.gov.au/info/run/finance-and-accounting/accounting/tax-deductions
http://www.abc.net.au/news/2017-07-05/ato-coming-after-small-businesses-and-individuals/8680948
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