Tax Deductions You Can Claim While Running A Small Business

April 16, 2021    Taxagent Perth

Running a business effectively and successfully involves a proper planning and infrastructure. You have to bear costs like staff wages, travel expenses, business finance costs, marketing costs etc. Whatsoever, you can always claim tax deductions over these expenses. Obviously, you cannot claim everything. You’ll have to abide by certain rules and regulations. Before going into details, one thing you should always remember that, you cannot claim private expenses.

How Does Tax Deduction Actually Work?

In Australia, you can claim most of your business expenses as tax deductions in order to reduce your taxable income. According to the standard formula followed by Australian Taxation Office or ATO, calculation of taxable income is done by deducting tax from assessable income. This assessable income i.e. the revenue that you get most from running your business is subject to tax.

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What Points You Should Consider While Filing For a Tax Deduction?

While filing for the deductions, you should remember that:

  • These expenses should have a direct relation with your income.
  • These should have been spent for the business purpose, and not for private engagement.
  • If the expense was used for both business and private purposes, you can claim the portion only used in business activities.
  • You should have well-maintained records for your claim.

What Expenses You May Claim Deductions For Your Small Business?

The Australian government gives tax relaxations for small business. It recently introduced additional tax relief for businesses that are just beginning, resulting in reduction of huge tax burden for small business owners. If you wish to start a small business, you can get some immediate deductions from accounting and legal expenses and also other government taxes and charges, according to the new tax relief scheme. For more information on small business tax return, you can consult with tax agents. The expenses that you can claim deductions for your business are as follows:

  • Business travel expenses: It is not so uncommon for a business owner or an employee to travel to areas inside or outside Australia for business purposes. While travelling, you can maintain a travel diary to document records of the expenses of the whole tour. And for a sole trading or a partnership business, this is a must-do. The good thing about this is that, the business expense deduction will not depend on how long will you stay. Regardless of whether you make travels for many nights or a single day, you will get the claimed deduction.

Travel expenses generally include airfares, ride fares (which may be train, bus or car), car hiring fares and the costs for using a hired car like fuel rates, car parking charges or toll taxes and obviously, accommodation fares. Meal fares can be claimed if you stay somewhere for a night. However, to get tax deduction on expenses taken for an overnight stay, you must own a permanent home elsewhere and you need to stay away from there while taking the business trip.

If it’s not you, but your employees travel for business, you can pay for their expenses in three different ways. You can pay directly from the business account, you can pay your employee a travel allowance or you may give them a reimbursement against all their expenses. Paying travel allowance and reimbursement has an added benefit and that is, you can get Fringe Benefits Tax (FBT) liabilities.

  • Motor vehicle expenses: These are the expenses that you spend on cars or other vehicles that are required for the running of your business. Cars that can carry load less than one tonnage and less than nine passengers are treated as motor vehicles. Motorcycles, utility truck or panel van that can carry more than one tonnage of load can also be included. The same goes for minivans which can carry more than nine passengers.

Various motor vehicle expenses include fuel and oil prices, repairing and servicing charges, motor vehicle loan interest rates, registration fees, lease payments and also insurance premiums. In case you use the motor vehicle for both private as well as business purposes, remember that, you must be able to identify and justify the amount you used for business purposes only.

  • Expenses for home-based business: Operating business from home is quite beneficial in certain senses. You can work comfortably in a familiar environment. Well, you can claim certain tax deductions for home-based expenses also. Occupancy expenses which include rent, mortgage interests, land taxes, house insurance premiums and council rates, can be claimed.

There remain other expenses too, like electricity, phone, necessary equipments, repairing of furniture and cleaning purposes. You will be glad to know that, these expenses are also deductible. And, last but not the least, you can claim for motor vehicle expenses against the transport fare you use to go from your home-based office to other places for business.

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When You Can Claim For The Expenses?

There are two types of expenses. One is, operating expenses that include office stationary charges and wages. For this, you may claim the deduction in the year you incur them. Another type of expenses is capital expenses that include charges on machinery and equipment. You can claim these expenses over a longer period.

Ending Note

For different business structures (like partnerships, trusts or companies), modes of tax deduction claim also differ. For more information and queries regarding small business income tax return, you may consult with any tax agent in Perth or anywhere else in Australia. Apart from that, you will find plenty of information available on the internet too.

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