Tax Deduction Guide for Australian Businesses

October 14, 2022    Taxagent Perth

You will likely know how your deductions might affect your taxes as a small business owner, and you will probably go out of your way to minimize your tax liability. But are you certain you are receiving all the tax deductions you are entitled to? Numerous Australian taxpayers fail to claim deductions that may result in significant yearly savings. Before filing your taxes, you owe it to yourself to learn as much as possible about the deductions you are eligible for. In this article i have shard a tax deduction guide for Australian businesses that will help to save your thousands of dollars in tax.

Business Deductions: Where to Begin?

Business Deductions Where to Begin

The hardest step in the tax filing process is often claiming the deductions. Your accounting practices must be accurate to substantiate every deduction you make. This is a goal that every small business owner would have, but it never hurts to emphasize the most critical things. In this blog, we bring a tax deduction guide for Australian businesses that will help to claim the tax deductions they rightly deserve.

One simple thing to remember is, to keep your company cost receipts intact. The Australian Taxation Office (ATO) may require documentation in support of some costs.The following three expenses are ones that the tax office normally pays particular attention to.

Read on to Know About Small Business Tax Deductions:

1. Home Office Expenses:

The pandemic has changed the way we used to work. With so many people following a hybrid work culture, tax deductions too, have become abundant.

2. Entertainment Expenses:

Be sure to record the specifics of your outings and meals. Taking down the attendees’ names and the event’s goal is a good idea.

3. Expenses Associated with Vehicles

Deducting the use of your vehicle for commercial purposes is acceptable. The ATO advises that you keep a meticulous record of all the times you use your car for work-related purposes, including the distance travelled and the purpose of the use.

What is Considered a Small Business?

What is considered a Small Business

From a tax standpoint, a company is often categorized as a small business if its yearly turnover is less than $10,000,000 and it is not affiliated with another company. A small firm is one with an aggregated turnover of less than $2,000,000 for the purposes of Capital Gains Tax (CGT) concessions.

Businesses must compute turnover based on aggregated sums, according to the legislation. This refers to all associated or connected firms’ annual turnover (gross income excluding goods and services tax).

What You Need to Know About Small Business Tax Deductions?

Australian small business tax deductions Guide

Any expense that is necessary yet ordinary is eligible for a tax deduction. Some small business expenses are completely deductible, there can some other expenses that are partially deductible. This implies that only a certain percentage of the total business cost can be claimed for tax purposes. Each small business tax deduction has specific guidelines and requirements that must be satisfied before the deduction can be applied to your taxes.

Here is a Tax Deduction Guide for Australian Businesses:

  • Personal Superannuation Contribution Deductions:

It is possible to claim a tax deduction for personal superannuation contributions made to an eligible super fund if you are under 75 years old. If you are between the ages of 67 and 74, you must have worked at least 40 hours per week for 30 straight days throughout the fiscal year.

You must submit a legitimate notice of intent in order to claim a deduction for your personal superannuation contributions and receive a written acknowledgment from the fund to make a personal tax-deductible donation.

  • Automobile Deductions:

Provided the vehicle is used only for business purposes, you may deduct the total amount of any operating costs your business incurs when operating a vehicle, whether it is taken on lease or purchased. You may deduct a portion of your business’s automobile expenses if it is a sole proprietorship or partnership, but there are substantial requirements.

  • Tax Management Expenses:

Managing the tax affairs of a business can be expensive, but you can deduct these costs when filing tax returns. This includes the costs of hiring a bookkeeper, hiring a certified tax agent to prepare and file returns and prepare activity statements.

  • Marketing and Advertising:

These influential factors, which you can write off, have the power to build or kill your company. You can write off the expense of these things as usual and essential expenses, whether you’re handling your email or running an advertisement in the neighborhood paper. The same is true if you employ a digital marketing agency, an expert in ad design, or a copywriter to create content; all of these support services are tax deductible.

Instant Asset Write-off Deductions:

Instant asset write-off deductions

Eligible businesses can immediately deduct the business share of an asset’s cost in the year the asset is initially put to use or installed and ready for use. Many assets qualify for instant asset write-offs, including both new and used assets, if the total cost of each asset falls below the applicable level.

However, you cannot use it for assets exempt from those regulations. The qualifying requirements and threshold for the instant asset write-off have varied over time. If you are a small business, you must apply the simplified depreciation standards. It would be best to determine your company’s eligibility depending on when the asset was bought, utilized for the first time, installed, and made ready for use, and then apply for the appropriate threshold amount.

How Does the Instant Asset Write-Off work?

The immediate asset write-off programme can be beneficial if you are a business owner considering upgrading or investing in any business equipment. Here’s an illustration of how it functions:

Consider that you are the owner of a candy business with annual revenue of $550,000 and a taxable income of $150,000. Since your annual revenue is less than $25 million, you must pay 25% corporation tax per Australia’s laws. Your overall tax obligation in this situation is $37,500 (or 0.25 times $150,000).

However, if you spend $40,000 on a commercial oven, you can deduct its full cost from your net taxable income for the year, bringing your total income down to $110,000 (150,000 — 40,000). Your new tax obligation will therefore be $27,500 (0.25 x $110,000), which gives you a tax deduction of $10,000 ($37,500 – $27,500). However, you must meet the quick asset write-off scheme requirements to be eligible for these advantages.

How do I Qualify For The Instant Asset Write-Off?

Australian firms (sole proprietorships, partnerships, corporations, and trusts) having a combined yearly income of less than $5 billion are eligible for the write-off. However, companies with combined annual revenue of less than $50 million may potentially deduct the cost of some second-hand assets:

  • An asset used or installed for business purposes in the fiscal year is eligible for a write-off. For instance, you might not be able to claim a tax credit for the 2020–2021 year if you purchase machinery on June 20, 2021 (10 days before the deadline), but you didn’t use it for business purposes until September 30, 2021.
  • Only the percentage of an asset’s value that is used for business purposes may be eligible for deduction if it has been bought for both business and personal use.
  • As long as the value of an item does not go above the threshold, your company can claim a deduction for any number of assets.

In What Cases Are Instant Asset Write-offs Excluded?

There are a few assets that you cannot instantly write off. These are some examples:

  • Leased out Assets:

Assets that are leased out, or are projected to be leased out, for more than 50% of the time on a depreciating asset lease.

  • Low-Value Assets:

You cannot write off assets assigned to a low-value asset (pool) before using the simplified depreciation rules.

  • Plants:

Horticultural plants, such as grapevines, are assets one cannot write off.

  • Software:

Software that has been assigned to a software development pool (but not other software) cannot be written off.

  • Capital Works:

Deductions for capital works come under assets that cannot be instantly written off.

  • Car Limit:

The instant asset write-off is restricted to the business portion of the applicable income tax year’s vehicle limit. Under any other depreciation laws, you cannot claim the excess cost over the automobile limit.

Conclusion of My Tax Deduction Guide for Australian Businesses:

If your business uses that money to generate an “assessable” income, then you typically qualify for a deduction. In a real business scenario, there are a number of legitimate deductions that almost every small business can take advantage of. A surprising number of companies make mistakes by overstating their deductions or claiming things they shouldn’t, but many more fail to take advantage of their deductions.

When it comes time to file your tax return, keeping thorough records regarding your business spending will help you make sure you have all the necessary data. By maintaining distinct accounts for the company and personal expenses, your tax write-off choices will be plentiful. Still, keeping separate records for personal and business spending may be challenging to claim deductions. Hence it is always advised to have a consolidated record that contains your personal and business expenditure for better tax deductions.

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