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SMALL BUSINESS RESOURCESEnd of Financial YearTax deduction for small businesses: What can I claim on tax?

End of Financial Year

Tax deduction for small businesses: What can I claim on tax?

Last Updated on 19/07/2024 by
6 minutes read

Like clockwork every EOFY, small business owners ask themselves “What can I claim on tax”? Understanding tax deductions and knowing what you can and can’t claim on tax is central to running a well-organised and compliant small business.

If you’re on hunt for more information, it’s time for a brief overview of tax deductions.

What can you claim on tax in your tax return With the Australian Taxation Office (ATO)? What are commonly missed deductions for small business owners? And why should you be working with an accountant?

What is tax deduction?

A tax deduction is all about lowering your taxable income, meaning more money for you to grow your business.

By claiming deductions in your tax return on applicable business expenses, the amount of tax you pay overall will be less and you’ll gain a boost in real income.

The Australian Tax Office’s deduction formula is:

Assessable income – tax deductions = taxable income

You can see through this formula why you’d want to claim as many legally allowable deductions as possible.

But how do you know what you can deduct from your taxable income?

What tax deductions do you qualify for?

The deductions you’re eligible for will depend on your circumstances and type of business.

Generally speaking, anything that you purchase, rent, or use in the course of running your business is tax deductible. There are, of course, caveats to this.

To be certain of tax deductions you qualify for (and take advantage of), it’s highly advisable to sit down with a bookkeeper or accountant to discuss your situation.

By meeting with a tax professional, you’ll reap the significant benefits of their accumulated tax knowledge and awareness of constantly shifting compliance legislation.

Find out more about small business tax deductions from the ATO here.

Tax deduction for small business

When it comes to tax deductions you can claim for small business, you can claim virtually all expenses that were business related and contributed directly to the running of your operations or the earning of business revenue.

Some things to consider when evaluating small business tax deductions:

    • Expenses must be directly related to earning business income.
    • The expense cannot be used for personal reasons.
    • If you split an asset or piece of equipment between personal and business use (a car or your internet connection for example) you can only claim the business-related portion.
    • You must have receipts and records on file for all business expenses. This should be a matter of course but becomes even more vital in case of a surprise audit.

However, there are exceptions to this rule which allow for tax deductions without receipts.

List of things that are tax deductible

Tax deductions you can claim for small business can include:

  • Business related equipment (including computers and car expenses)
  • Repairs and maintenance
  • Depreciating assets
  • Business travel expenses and overnight accommodation

Commonly missed tax deductions

On top of the more obvious business-related expenses you can deduct, there are a number which are often overlooked. Be sure you claim a deduction on the following work-related expenses:

  • Salaries and superannuation contributions for employees
  • Union and registration fees
  • Bad debts (unpaid invoices beyond recovery)
  • Self-education expenses (courses and books etc.)
  • Sun protection for those working outdoors
  • Work related laundry
  • Donations
  • Bank fees

Commonly missed tax deductions contribute to unnecessarily high tax bills. You can avoid this by working with tax accountants.

Home-based SME deductions

If you’re operating a small business from home for part or all of your time, there are several key tax deductions you can submit to the ATO.

During COVID-19, many of us were relegated from commercial offices to working from home in the living room, spare room, or bedroom. Luckily, this represents a boost to the home office expenses you can claim.

While home-based small businesses can access every tax deduction a regular SME can, there are extra allowances for businesses who operate from a home, either part or full time.

What are you entitled to claim for your home based small business?

  • Furniture (including cleaning and repairs)
  • Devices and equipment
  • Electricity and gas for lighting and heating
  • Mobile phone and internet use for business
  • Rent or mortgage
  • House insurance
  • Interest
  • Software
  • Decline in value for all business-related equipment, furniture, and devices etc.
  • Transport to and from your home office for work purposes

Methods for claiming home office expenses

There are two methods you can use for calculating home office expenses, as stipulated by the ATO.

The revised fixed rate method uses time to calculate your deduction, and accounts for things like electricity, phone, internet, heating etc. It does not include depreciation or business equipment purchases, which you’re able to claim separately.

The actual cost method involves tallying up the business portion of all running costs you used to run your business.

Use the ATO’s calculator to work out which method of home office expense calculation suits your needs and grants you a better return.

If in doubt, always refer to the ATO’s page on home office expenses or chat with your accountant, bookkeeper or advisor.

Work from home tax deduction

If you’re not actually running a small business from home, but instead simply working a job from home, you’re still able to claim many of your expenses.

While you cannot claim for things like rent or mortgage, you can still claim your running costs. You now no longer need a dedicated home office space either.

To claim for running costs you can use either the revised fixed cost method or the actual cost method.

As for a home-based small business, if you use the fixed cost method, you’re not able to claim separately for anything included in this rate (like internet and electricity). You can, however, claim a deduction for depreciation on assets or for purchases like computer equipment or furniture.

Whichever method you choose, you need to keep a log of how many hours you’re working from home and keep any receipts for business related expenses.

When can you claim tax back?

When exactly can you lodge a claim for tax deductions? You can claim a deduction when you lodge your tax return every financial year in Australia.

From July 1 every year you may go right ahead and submit your tax return, including your tax deductions, with an ATO close-off date of October 31.

Should you need to know more about tax deductions for small businesses, either consult your advisor or refer directly to the ATO’s hub of compliance information.

About the Author

Alex Neighbour

Senior Writer
Alex Neighbour is a highly experienced senior writer who excels at exploring and explaining topics in the accounting and small business space, including software, technology, finance, bookkeeping, and business management.

Alex Neighbour

Senior Writer
Alex Neighbour is a highly experienced senior writer who excels at exploring and explaining topics in the accounting and small business space, including software, technology, finance, bookkeeping, and business management.

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