Everything You Must Know About Tax Deductions for Your Small Business

• Reading Time: 7 Minutes
• Published: December 29, 2020
• Last Updated: February 7, 2025

Taxes can be quite a challenging task and is one of the reasons why most people would rather avoid them, but for someone who plans and pays on time, it can make several tax benefits. Calculation of taxable income is quite simple as–

Taxable Income = Assessable Income – Tax Deductions

Let’s understand what items can be categorised under assessable income or expenses on which tax deductions can be claimed. Calculating assessable income is a vital part of your small business accounting which helps in further tax calculations.

So What Consists of Your Assessable Income Are –

• All gross income before tax from your day to day business activities; this value is exclusive of goods and services tax (GST).
• All other income from the business that is not included in the above amount, could consist of income from trading stock, capital gains, cash prizes, and similar categories.

As for Tax deduction, we have explained earlier in one of our blogs about “Things you might be doing wrong which may land you in trouble with ATO”,

Following Are The Expenses On Which You Can Claim Tax Deductions

• Expenses incurred in the process of earning your income
• Expense on business but not on personal use
• Expenses for which you have records

If your expense is a mix of both personal and business use, you can claim the portion used for your business. As for types of expenses, operating expenses can be claimed in the same year as you incur them, and capital expenses can be claimed over an extended period.

Now let us discuss in details some potential tax deductions to keep in mind while preparing your tax return-

• Asset write-off: This is a form of a tax deduction on a capital expense like the purchase of machinery, vehicles, and similar assets. Take note that every asset purchase may not qualify for asset write-off, so make sure to consult your accountant and tax consultant.
• Work from home: Many small businesses operate from their home, and in such case, you can claim on the portion of work-related expenses such as electricity, phone, use of a computer, furniture, and more.
• Conveyance expense: You can claim deduction on vehicle and travel expenses incurred on your work, including travel fares and costs related to business travel, like accommodation costs and meal expenses for overnight business travel. This is applicable for the travelling cost of employees as well.
• Vehicle: You can also claim a tax deduction for expenses on motor vehicles that are used in running your business like fuel, repairs & servicing, interest on a motor vehicle loan, lease payments, insurance cover premiums, registration, and depreciation.
• Deductible Gift Recipient: If you are donating or gifting to an organisation with deductible gift recipients (DGR), you can claim a deduction on the same.
• Pre-paid Expense: Businesses can get an immediate tax deduction for certain prepaid business expenses. Suppose you make prepaid payment before the end of the financial year and the actual expense occurs in the new financial year then you can claim deduction on the same in the last financial year.

What Type of Expenses You Can’t Claim Deductions?

Now that we know what can be deducted, it is essential to understand and note expenses that are not deductible, claiming for non-deductible expense might give rise to more significant issues. Here are some non-deductible expenses-

• Expense on entertainment
• Expense on traffic fines
• Expense on personal or domestic activity
• Expenses relating to non-assessable income
• Purchases with GST component on which you have availed GST credit on your business activity statement.

The tax calculation task is a complex one, so it is best to trust your accounting outsourcing provider or tax consultant as it will help in your accurate tax calculation. In this article, we have tried to provide extensive information on the tax deduction, but if you want to know more or if you are still confused, you can always contact us and talk to our experts who will guide you with a more detailed process.

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