As a business, it is compulsory to pay business taxes in Australia. Therefore you should also know to get the advantage of the business tax deductions.
If you are doing your taxes through a professional tax agent, then you don’t have to worry about it. However, if you are doing the taxes yourself, you should know what a tax deduction is, how it would help you, what expenses could be deducted, etc.
This article will briefly explain what you should know about business tax deductions in Australia.
How business tax deductions work
When you run a business, you will incur various expenses. Out of these expenses, some are allowed to be deducted from the taxable income.
Your net taxable income will reduce when these expenses are deducted from the taxable income, thereby reducing your taxes.
However, you should keep in mind that only certain expenses are allowed to be deducted from the taxable income.
To simplify this, look at the simple formula used to calculate your taxable income.
Taxable Income = Assessable Income - Tax Deductions
What expenses can you claim as tax deductions?
As said before, you can only claim certain expenses as tax deductions. The ATO will allow you to claim most expenses incurred from running your business. However, these expenses should be directly linked to earning the assessable income of your business.
There are three conditions that ATO considers when allowing to consider a particular expense a valid deduction.
- The expense should be for the business and not for private benefit.
- If the expense is a mix of business and private benefits, you can only claim the portion of the business expense.
- You should have the records to prove it
That is being said, you can claim these expenses as tax deductions.
- Operating expenses such as salaries and wages of the employees, super contributions, purchase of office stationery, machine repairs, and maintenance expenses.
- Capital expenses such as the depreciation of an asset.
What expenses cannot be claimed as tax deductions
Do you remember the first condition of the ATO as mentioned above? Any expense you incur for personal benefit will immediately be disregarded as a business expense.
Following are some of the expenses which you cannot claim as tax deductions.
- Private and domestic expenses such as childcare fees and food for your family.
- Traffic fines.
- Entertainment expenses.
- The Goods and Services Tax (GST) of purchase, if you can claim it as a GST credit from your activity statement.
Read more: ATO
What records should you keep as proof to claim tax deductions
If you are claiming an expense as a tax deduction, you should have documents as proof of the expense. These records can be either be in written form or electronic media.
These records should prove that the expense is incurred for business purposes, and you should substantiate your claim.
For example, if you want to claim a motor vehicle expense, you should have the following
- Motor vehicle registration – Registration papers
- Details of the kilometers traveled for business and personal benefit – Oil and fuel receipts
- Loan or lease information – Loan or lease documents.
You should keep these records and documents for at least five years, from the date you lodge them in your tax returns.
Read more: ATO
Should you keep every receipt with you
As mentioned before, you must keep receipts to claim tax deductions. However, there are several exceptions.
If you don’t have a receipt, check whether the following conditions apply to you. ATO will allow you to claim an expenditure without a receipt under these circumstances.
Small expense receipt
These are petty expenses that are $10 or less. You can claim them as long as the total small expense claim is less than $200.
If you don’t have a receipt for these expenses, you can claim them by simply recording them.
Hard to get a receipt
Don’t worry if you cannot obtain a receipt for a work-related expenditure. You can still claim it by making a simple record. In the record, you should indicate what you purchased, to whom you paid how much was paid, and when it was paid.
Read more: ATO
Should you hire a tax agent to lodge the taxes
Filing for taxes can be tiring and stressful. However, calculating your taxes accurately is crucial to avoid legal issues and financial losses. Therefore you should be familiar with the tax laws and regulations of the country.
Hiring a tax agent to calculate and lodge your taxes is always ideal. They can understand your condition well and help you to get the maximum benefit from business tax deductions. If you are looking for a skilled tax agent, look no further.
Our team at SPS Business Consultants has the skills and experience to help you to get the maximum claims for tax deductions. Every business is important to us regardless of the scale. Therefore we can assist you regardless of your business’s scale and structure.