Running a business means spending money but not all of it is tax deductible. At D&B Accountants, we want you to understand what expenses you can claim, what you can’t, and how to stay on the right side of the ATO. Getting the right tax advice from the start is crucial.
What You Can Claim as Business Expenses
You can generally claim a tax deduction for most expenses that are directly connected to running your business. (Australian Taxation Office) Some common deductible expenses include:
- Day to day operating costs: stationery, phone, internet, rent for business premises, utilities. (Australian Taxation Office)
- Purchases of goods or services for business: supplies, subcontractors, advertising. (Australian Taxation Office)
- Capital expenses (for assets): items like computers, equipment, tools but these are usually claimed over time (through depreciation) unless special rules apply. (Australian Taxation Office)
- Home based business expenses (if you run from home): a portion of electricity, internet, and part of your home costs if you have a dedicated workspace. (Australian Taxation Office)
- Motor vehicle costs (for business travel): fuel, insurance, registration, maintenance, depreciation but only for the business portion of use. (Australian Taxation Office)
When an expense is partly for private use, you must apportion (i.e. split) the business part. (Australian Taxation Office) Also, if you can claim a GST credit for it, you must deduct the GST part from your claim. (Australian Taxation Office)
What You Can’t Claim
Some expenses are not deductible. The ATO is clear about these limits. (Australian Taxation Office) Examples include:
- Private or personal expenses. e.g. household bills that aren’t business related, clothing you wear personally.
- Entertainment (except in limited cases) and fines or penalties.
- The GST portion of an expense if you already get a GST credit.
- Capital expenses for things like land or buildings where the rules of capital gains tax apply (unless special provisions allow some deduction).
- Non compliant payments or expenses where PAYG withholding or reporting obligations weren’t met. (Australian Taxation Office)
The “Golden Rules” for Claiming Deductions
To help you and us know whether an expense is valid, the ATO uses three guiding principles: (Australian Taxation Office)
- You must have incurred the expense (you paid or owe it) and it must relate to earning your business income.
- It must be directly connected to your business, not for private or domestic purposes.
- You must have records (receipts, invoices, logs) to prove the expense.
If an expense is partly business/partly personal, you only claim the business portion, and you need a fair method to apportion it. (Australian Taxation Office). This is a key area where a good accountant can provide essential guidance.
How to Handle Home Office and Mixed Use Expenses?
Many small businesses or sole traders run from home. In those cases:
- You can claim running costs (electricity, cleaning, internet, phone) for the portion used for business. (Australian Taxation Office)
- If you have an area of your home specifically used as a “place of business,” you may also claim occupancy costs (rent, mortgage interest, rates, insurance) for that portion. (Australian Taxation Office)
- Two common methods: fixed rate method (claim a set rate per hour) or actual cost method (you track actual expenses). (Australian Taxation Office)
Be careful: using your home for business can have capital gains tax implications if part of your home is considered “business use” when you sell. (Australian Taxation Office)
What D&B Accountants Will Do to Help You?
As your trusted financial consultants for your business, we will:
- Help you identify and separate legitimate business expenses from personal ones.
- Assist with apportioning mixed use costs fairly.
- Ensure you keep proper records, and documentation so claims stand up under review.
- Advise you on home office claims, motor vehicle expenses, and depreciation.
- Review your expense claims before lodgement to reduce audit risk and avoid disallowed claims.
Final Thought
Claiming deductions can reduce your tax, but only when done correctly and with solid evidence. Mis claiming personal costs or overestimating the business portion can lead to trouble with the ATO. At D&B Accountants, we’re committed to helping you claim what’s rightfully yours, while keeping your tax position safe, compliant, and audit ready. Think of us as your financial expert partners in business.