The end of financial year serves as a good reminder for claiming tax deductions. Knowing what is and isn’t available as a deduction will set business owners up for success in the new financial year. While some deductions for businesses are similar to property investors, others are quite unique.
In this article, we will cover the following business tax deductions:
- Repairs and maintenance
- Motor vehicle expenses
- Business travel
- Employee wages and super contributions
- Other operating expenses
- Depreciation deductions
What makes something a business tax deduction?
There are many tax deductions out there, but not everything will be eligible. The Australian Taxation Office (ATO) applies three golden rules when determining business tax deduction eligibility.
- The tax-deductible expense must be for business use, not private.
- If the expense is partially used for private use, the owner can only claim the portion used for business purposes.
- The business owner must have records to substantiate the deduction.
Key business tax deductions
Hundreds of tax deductions are out there to be claimed. Deductions can change depending on the type of business and how it’s set up. Here are six key categories that are applicable for most businesses.
1. Repairs and maintenance
The ‘repairs and maintenance’ umbrella is large. It covers expenses associated with the upkeep of the assets needed for business operations. Examples could be painting, maintaining plumbing, replacing damaged parts of assets like broken glass and repairing machinery.
Further rules apply to claiming repairs for machinery, tools and property. If the repair is made immediately after acquisition, it can’t be claimed. The ATO’s rationale for this ruling is that the need for the repair is a result of the item’s condition when it was purchased, not the business’s operations.
2. Motor vehicle expenses
Motor expenses include fuel, repairs and services, the interest on a motor vehicle loan, insurances and registration. Business owners can also claim the depreciation on a vehicle’s value – but more on this later.
3. Business travel
These are the travel expenses outside those spent exclusively on operating a business vehicle.
Examples are airfares, public transport expenses, car hire fees and overnight business accommodation. Meals for overnight travel also fall under this category.
4. Employee wages and super contributions
Employee wages and salaries are a type of operating expense; therefore they are tax deductible.
How they are claimed depends on whether the business is a partnership, trust or company. But generally, to claim them a prerequisite is to comply with pay-as-you-go withholding and reporting obligations for all employee payments.
Businesses can also claim a tax deduction on the super contributions they make for their employees. To be eligible, the contributions must be made on time and into a complying super fund or retirement savings account.
5. Other operating expenses
The list of other general business operating expenses is endless – these are the everyday expenses related to running a business.
Just some examples include utilities, advertising, sponsorships, stationary, insurance premiums, waste removal, legal expenses and the cost of running a commercial website.
6. Depreciation deductions
Last but not least is depreciation.
Depreciation is the natural wear and tear of property and assets over time. Business owners can claim depreciation as a tax deduction on most assets they own and use for their business, including tools, vehicles, furniture and property.
A business’s easily removable and mechanical assets are classified as ‘plant and equipment’ for depreciation purposes. Usually, the yearly depreciation claim is based off the asset’s effective life.
However, a policy called temporary full expensing is currently in place until the end of the 2022/23 financial year. This allows businesses to instantly deduct any eligible plant and equipment asset purchased after 7.30pm on 6 October 2020 and before 30 June 2023. Find out more about temporary full expensing here.
BMT Tax Depreciation has been working with Australian businesses for over twenty years, helping them achieve the maximum depreciation deductions possible. To learn more about BMT’s commercial services, contact the team on 1300 728 726 or Request a Quote.