Deductions for costs incurred in running your business are allowable, provided the expenses are not of a private, domestic or capital nature.
What are tax deductions?
In your tax return, you can claim most business expenses as tax deductions to reduce your taxable income.
The ATO calculates your taxable income using the following formula:
Assessable income (income subject to tax) – tax deductions = taxable income (the amount you pay tax on)
Generally, most money you receive in carrying out your business is assessable income.
Expenses you can claim
Most costs you incur in running your business can be claimed as a tax deduction, as long as they directly relate to earning your income.
You may be able to claim deductions for your business if your business:
- has motor vehicle expenses
- uses diesel fuel
- is based at your home
- has website expenses
- has travel expenses
- uses plant, such as machinery, tools or computers.
If you're a contractor or a consultant, your personal services income can affect your tax obligations.
When you can claim expenses
Generally, you can claim:
- operating expenses (such as office stationery and wages) in the year you incur them
- capital expenses (such as machinery and equipment) over a longer period of time.
Find out more from the ATO about:
Records you need to keep
If you claim business deductions, you’ll need to:
- keep paper or electronic records of the business expense for five years
- ensure the records are easily accessible and available in English.
What to do...
- Read the Australian Taxation Office's (ATO's) information about personal services income essentials.
- Read about when you can claim a business deduction.
- Find out about home-based work and deductions.
- Visit Finances to learn more about analysing your finances.
- Understand the tax differences between a sole trader and a company business structure.