An expert guide on claiming business expenses

It’s in every business owner’s best interest to track and claim all of their expenses. The higher your business's expenses, the lower your profits. And that means less tax to pay.​

With that in mind, we use a rule of thumb for identifying which costs can be claimed as business expenses: If an expense is related to the generation of revenue, it can be claimed.​

The nature of your business is also a factor. For example, a media production company will be able to claim Netflix and Amazon Prime subscriptions as expenses (they are critical for research), but a construction business won’t.​

Nothing is more expensive than a missed opportunity especially when it comes to your business. Don’t miss out on claiming all potential tax deductions to save your business money and in this blog, we’ll try to provide you with a checklist that will help you make sure you don’t miss out. ​

A tax deduction is an amount you deduct from your gross income so the tax you have to pay is lower.  It’s sometimes called a tax write-off. ​

There are 3 golden rules for what the ATO accept as a valid business deduction:​

Is it entertainment or a business expense? The ATO certainly like to make sure it’s not black and white. It’s almost like solving a mystery – but simple questions of Why, When, What and Where can help you figure out if something is deductible. Find out more on the ATO website.​

Generally, entertainment expenses are non-deductible for income tax purposes. However, some specific entertainment expenses are deductible, for example:​

You can generally claim an income tax deduction and GST credits for the cost of providing entertainment that is a fringe benefit.​

Entertainment benefits provided to people other than employees or their associates (to clients for example) are not subject to FBT and are generally not income tax deductible for employers.​

When a legal expense is incurred in relation to the operation of a business to produce assessable income, it is generally allowable as a deduction. Exceptions are when the legal fee is capital, domestic or private in nature or specifically excluded from tax legislation.​

Circumstances where legal fees are usually deductible include:​

You can claim a tax deduction for expenses relating to repairs, maintenance or replacement of machinery, tools or premises you use to produce business income, as long as the expenses are not capital expenses. It becomes capital in nature when you make a substantial improvement to an asset, generally making the asset worth more than its initial purchase price. For more information, the ATO gives more guidance here.​

Examples of claimable R&M are:​

It’s been an interesting time over the past few years which has seen our world go through a global pandemic that has significantly changed the way people work. With more people working from home, there’s even more to consider when looking at your tax return.​

There are two types of home office expenses you can claim: ​

Running expenses refer to the cost incurred for using your home utilities to conduct business activities. For example, ​

You are eligible to claim running expenses even though you don’t have a work area at home, or your home is not the principal place of your business.​

Occupancy expenses refer to the cost you pay for your own or rent your home. For example, ​

You are only eligible to claim occupancy expenses as a part of tax deduction if the area of your home is the principal place of business. It should be clearly identified as a place of business. This means the area shouldn’t be easily adaptable for personal or domestic use and it should be used exclusively or almost exclusively for business purposes.​

When calculating occupancy expenses, the amount you could claim for tax deduction depends on the proportion of the area and the year it is used for business. ​

For more information on methods of how to calculate the deduction, check out our other blog here ​

ATO has some ‘reader-friendly’ guidance on expenses to be claimed, based on what they’ve identified within specific industries or consult with your accountant for clarifications. ​

Deductions save money! Understanding what’s tax-deductible and knowing the rules can reduce your taxable income. It’s also important to keep track of them. Make sure you keep records of the expenses for 5 years. ​

You can rely on Excel or keep a manual logbook but this is more fiddly and you are more prone to error. Therefore, opting in for accounting software such as Xero simplifies expense tracking, tax admins, and automatic filing for your taxes. ​

We’re an online accounting firm that is always right here for you, your accounting pain relief. The most advanced technology lets us work way more closely with you than a normal accountant world. ​​

We have a dedicated team of certified accountants and a support team to take care of your business no matter where you are, so you can focus on growing your business. We take out the ‘fluff’, break down the barriers and get things done. Looking out for you is what we are all about. Get started for free today.​