This guide shares all the tax deductions small businesses can claim to boost earnings while staying tax-compliant in 2024.
Business tax deductions can greatly help small businesses reduce taxes and increase cash flow. While most owners already claim tax deductions for business expenses, not all of them maximise their deductions.
We hope this list of expenses you can claim as tax deductions changes that. Keep reading below and learn about the 40+ different business expenses you may be able to claim as tax deductions.
Getting Started on Claiming Business Tax Deductions
If you’re planning to claim tax deductions this year and moving forward, there are two things you’ll need. First, is a set of detailed records and receipts of business expenses to support the claims. You’ll also need a deep understanding of these business tax deductions, so you can claim them accurately.
Let’s say, for instance, that a business purchases office supplies for $500. The business owner can claim that amount as a tax deduction. Consequently, he or she will lower the business’s taxable income by that amount.
But in some cases, you might have expenses that you use for both business and private purposes, like a home or vehicle. In these scenarios, you can only claim a deduction for the business portion of those expenses (more on that below).
We also highly recommend that you stay informed about updates to legislation regarding business related tax deductions from the Australian Taxation Office (ATO). Keep an eye on this resource for any changes or updates.
Below, we outline some of the most common deductions you may be able to claim. We’ve broken them down into several convenient categories to help you understand them better.
Motor Vehicle Expenses
The vehicle must be used for business purposes and can include cars, motorcycles, or other vehicles designed to carry less than one tonne or fewer than nine passengers. To claim Motor vehicle Expenses, you will need to keep a log-book for a continuous period of 12 weeks. A valid logbook must contain the following information:
- When the logbook period begins and ends
- the car’s odometer readings at the start and end of the logbook period
- the total number of kilometres the car travelled during the logbook period
- the number of kilometres travelled for each journey. If you make two or more journeys in a row on the same day, you can record them as a single journey
- the odometer readings at the start and end of each subsequent business income year your logbook is valid for
- the business-use percentage for the logbook period
- the make, model, engine capacity, and registration number of the car.
For each journey, record the:
- reason for the journey (such as a description of the business reason or whether it was for private use)
- start and end date of the journey
- odometer readings at the start and end of the journey
- kilometres travelled.
Note, where a taxpayer has not kept a valid logbook they may be able to make a claim for motor vehicle expenses based on a Cents per Kilometre rate provided they have kept details on the business-related trips. Note: Different rules apply to commercial vehicles.
Where you have kept a valid logbook you can claim a deduction for the business-related portion of the following expenses.
Note: These costs are deductible based on the percentage of business use.
1) Fuel and Oil. Expenses incurred for fuel and oil used to operate the vehicle for business purposes. These costs are essential for the day-to-day running of the vehicle and can be claimed in proportion to the vehicle’s business use.
2) Repairs and Maintenance. Costs associated with keeping the vehicle in good working condition, including regular servicing, tire replacement, brake repairs, or fixing mechanical issues.
3) Insurance Premiums. The amount paid for insuring the vehicle against risks such as theft, accidents, or damage.
4) Registration Costs. Expenses related to registering the vehicle with state or local authorities, which are necessary for legally operating the vehicle.
5) Loan Interest (if the vehicle was purchased on finance). Interest payments on a loan taken to finance the purchase of the vehicle.
6) Depreciation (based on the effective life of the vehicle if purchased outright). Depreciation refers to the decline in value of the vehicle over time due to wear and tear. You can claim depreciation for the business use portion of the vehicle over its effective life, following the ATO’s guidelines.
7) Lease Payments (if the vehicle is leased). Lease payments made for a vehicle used in business can be claimed as a valid business deduction in proportion to the vehicle’s business use. This includes monthly lease payments or any associated fees.
Occupancy Expenses for Home-Based Businesses
If part of your home is used exclusively for business purposes, you can claim a portion of the occupancy expenses. This means you have a designated area in your home that serves as a ‘place of business,’ indicators that an area qualifies as a ‘place of business’ include:
- It is clearly identifiable as a business location, such as having a sign at the front of your house.
- It is not easily suitable or adaptable for private or domestic use.
- It is used exclusively or nearly exclusively for business activities.
- It is regularly used for client visits.
If personal services income (PSI) rules apply to your business, you may be unable to claim occupancy expenses. You can use the PSI tool to determine whether you earned PSI and whether the PSI rules apply to that income.
It is important to note that generally, when you sell your home CGT doesn’t apply. However, if you used any part of your home for business purposes, you may have to pay CGT. Note that the ATO states CGT won’t apply if you didn’t have an area specifically set aside for your business activities and you did not claim occupancy expenses.
You would usually calculate occupancy expenses based on the percentage of the floor area of your home that is a place of business and the proportion of the year it was used for business. Where you have kept the appropriate records, you can claim a deduction for the business-related portion of the following expenses.
8) Rent (if renting the home). When you’re renting your home and use a portion for business purposes, you can claim the rent attributable to that space as a deductible expense. Generally, the deduction depends on the percentage of the home you use for the business. So if you’re using 20% of your home for your business, for instance, you can claim 20% of the total rent as a deduction.
9) Mortgage Interest (if you own the home). For homeowners, you can claim a percentage of the interest on your home loan that corresponds to the business area’s use. This does not apply to the principal repayments.
10) Council Rates. You can claim a proportionate amount of the council rates based on the area of your home used for business.
Running Expenses
Running expenses are costs for operating the business from your home. Running expenses are the additional costs of using your home for your business activities. You can claim these expenses if you run your business from home, even if you don’t have an area of your home set aside as a ‘place of business
These can be claimed based on your business use of your home.
11) Electricity and Gas. You can claim a portion of your electricity and gas bills for heating, cooling, and lighting the home office based on business use.
12) Depreciation. Depreciation on office furniture, equipment, and fittings used for business can be claimed over their effective life.
13) Cleaning Costs. You can also claim what you pay to clean your office or home (if you use a portion of your home for business purposes).
14) Phone and Internet Expenses. You can claim the work-related portion of your phone and internet expenses used for business operations.
15) Office Equipment and Furniture. Expenses for office equipment and furniture can be claimed based on the business use.
- Immediate Deduction: If the cost is $300 or less, claim the full amount in the year of purchase.
- Depreciation: For items over $300, claim a deduction over the item’s useful life.
Business-Related Supplies
Any supplies or materials used directly for your business can be deducted.
16) Office Stationery. Items such as pens, notepads, staplers, envelopes, and folders are considered stationery and can be deducted as they are essential for maintaining paperwork and administrative tasks.
17) Printer Ink and Paper. Consumables such as printer cartridges, paper, and other printing materials used for business documentation or reports are deductible.
Travel Expenses
Your business can claim a deduction for travel expenses that are directly related to conducting business, whether the travel occurs within the day or involves overnight stays.
Where you are away for 6 nights in a row or more, you will need to keep a travel diary to make a claim for business deductions resulting from the trip.
A travel diary is a log of the following:
- Where you were.
- What you were doing.
- When you stopped for meals.
- Date and start/finish times for the activity.
18) Airfares. The cost of flights used to travel for business purposes, such as attending meetings, conferences, or visiting clients.
19) Train, Tram, Bus, Taxi, or Ride-Sourcing Fares. Fares for public transport or ride-sharing services used to travel for business activities, such as meeting clients or attending work-related events.
20) Car Hire Fees and Associated Costs. Expenses incurred when hiring a car for business, including the rental fee, fuel, tolls, and parking charges.
21) Accommodation. Costs for staying overnight in hotels, motels, or other forms of accommodation when your business requires you to be away from your usual place of residence.
22) Meals (for Overnight Travel). The cost of meals while traveling overnight for business purposes. This applies when you are away from home for business and must stay overnight. Note
Salaries, Wages, and Superannuation
These deductions help reduce your taxable income and include payments made directly to employees, as well as other costs associated with employee remuneration, such as super contributions and certain fringe benefits.
23) Salaries and Wages. You can claim a deduction for the salaries and wages you pay to employees for the work they perform. This includes full-time, part-time, and casual employees.
24) Superannuation Contributions Superannuation contributions you make on behalf of your employees, as part of their remuneration package, are tax-deductible. The super guarantee (currently 11.5% of an employee’s ordinary earnings) must be paid on time for it to be deductible.
25) Bonuses and Commissions. Bonuses and commissions paid to employees for meeting targets or performance metrics are also deductible.
26) Fringe Benefits. If you provide fringe benefits to your employees (e.g., company cars, private health insurance), you can claim a deduction for the cost of these benefits. Note that the amount of FBT paid is tax deductible. Fringe Benefits Tax (FBT) is a tax paid by employers on certain benefits provided to employees and their associates, differing from salary or wages.
Examples of fringe benefits include:
- Use of a work car for personal purposes
- Car parking
- Gym membership payments
- Free concert tickets
- Reimbursed expenses like school fees
- Discounted loans
- Benefits from salary sacrifice arrangements.
Please consult a professional where the provision of benefits has been made to employees as FBT is a complicated aspect of the tax legislation.
27) Allowances. Allowances paid to employees, such as for travel, accommodation, or uniforms, are deductible.
28) Workers’ Compensation Insurance. Premiums paid for workers’ compensation insurance to cover your employees are deductible.
Repairs, Maintenance, and Replacement Expenses
These deductions apply to costs incurred in keeping business property and equipment in working condition, whether it’s for minor repairs, general upkeep, or replacing worn-out parts.
29) Repairs. These costs are deductible as long as they restore the asset to its original condition without improving its overall value.
30) Maintenance. This can include activities like cleaning, painting, and servicing, such as regularly servicing business vehicles or repainting the exterior of a shopfront to prevent deterioration.
31) Replacement of Parts. The cost of replacing minor parts of an asset that wear out over time can be deducted, provided it doesn’t result in the complete renewal of the asset.
Depreciating Assets and Capital Expenses
Depreciating assets are items with a limited effective life that are used in business operations, such as machinery, vehicles, and office equipment. Instead of claiming the full cost of these assets in the year of purchase, a small business or tradesperson can spread cost over the asset’s effective life through depreciation.
32) Depreciating Assets. Depreciating assets are tangible business assets that decline in value over time due to wear and tear, use, or obsolescence. You can claim a deduction for the depreciation of assets like machinery, vehicles, computers, and office furniture.
33) Instant Asset Write-Off. For certain assets, the ATO allows an instant asset write-off, where the full cost of assets below a specific threshold can be claimed immediately in the year of purchase, instead of being depreciated over several years.
34) Capital Works Deduction. This deduction applies to structural improvements and construction costs, such as building extensions, renovations, and other permanent structures. Capital works deductions are claimed over a longer period (usually 40 years) at a fixed rate of 2.5% per year.
35) Low-Value Pool Deduction. Assets with a value below $1,000 can be grouped into a low-value pool, allowing you to depreciate them at a higher rate. This simplifies depreciation for smaller assets.
36) Software and Intangible Assets. Intangible assets like software used for business purposes can also be depreciated over time. The useful life of these assets is determined based on the specific circumstances.
Crowd Funding
Here are some crowd funding expenses you can declare as tax deductions:
37) Crowd Funding Expenses to expand an existing business. Crowdfunding involves using various platforms to raise funds for a project or venture, and understanding the associated tax implications is essential, as they can vary based on the nature of the arrangement and your role. Money received through crowdfunding may be considered assessable income, requiring declaration on your tax return, and you may claim deductions for related expenses if proper records are maintained.
38) Deductions for Unrecoverable Income (Bad Debts). A business can claim a deduction for bad debts when the debt is deemed unrecoverable and has been written off in the same income year, provided the income from the debt was previously included as assessable income and you have evidence that you have commenced proceedings to recover the debt and have been unsuccessful.
Small Business Energy Incentive
The Small Business Energy Incentive is a temporary initiative designed to encourage small businesses to invest in energy-efficient assets and reduce their environmental impact. This incentive allows small businesses to claim an additional deduction for eligible energy-saving equipment and improvements, promoting a shift toward sustainable business practices.
39) Electrifying Equipment, such as installing a reverse cycle air conditioner in place of a gas heater.
40) Upgrading to Energy Efficient Appliances, such as energy-efficient refrigeration systems.
41) Time-Shifting Devices that allow appliances to operate during off-peak hours to reduce energy usage.
42) Replacing Diesel Engines with Electric Motors.
43) Virtual Power Plant (VPP) Battery Systems
How to Claim Your Tax Deduction
Entities can claim expenses differently, and not all enjoy the same small business deduction benefits. Here’s a simplified guide for small business tax deductions:
- Sole Traders: Claim deductions in individual tax returns under the business and professional items section. They can’t deduct payroll expenses as they don’t pay wages. Sole traders with personal services income (PSI) have limited deductions compared to others. Generally, they can deduct home-based operations, facility expenses, rent of commercial property, cost of goods sold, and general operating expenses, subject to specific rules.
- Partnerships: Claim expenses in partnership tax returns. Like sole traders, they can’t deduct payroll wages but can deduct general operations expenses.
- Trusts and Companies: Separate legal entities such as trusts and companies may claim expense deductions in their tax returns. They can deduct payroll expenses, cost of goods sold, and all general operating expenses.
All entity types must file annual tax returns with the ATO.
Final Words
Tax deductions can be overwhelming for any small business owner. With all opportunities to reduce your taxable income and enhance your cash flow, you should make it a goal to claim all the potential deductions you can.
Sometimes, that can be difficult with all the things you also have to do as the owner and operator of your business. We highly recommend that you leave all the complexities of tax law to a registered tax agent, so you can focus on your business.
If you’re looking for one, Samnite Accounting and Advisory is more than happy to help. We offer complimentary 15-minute initial consultations for businesses, where we can discuss potential tax deductions you may be overlooking. Get in touch now and take the first step towards a more financially savvy future.
