Common Tax Deductions for Small Business
There are many expenses common to most small businesses, and there are other expenses that are specific to the nature of the goods or services the business provides. Are you claiming all the tax deductions that you are entitled to?
- Operating expenses include accounting, administration, advertising and marketing, office premises, office running expenses, trading stock, legal fees, insurance, and vehicle expenses.
- Employment expenses include salary and wages, fringe benefits, superannuation, and training costs.
- Other operating expenses may include things specific to your business, for example, point of sale systems, freight, professional membership fees, professional education, protective equipment, tools, or specialised software.
- Capital expenses include machinery and equipment, vehicles, furniture, and computers. Depreciation for these assets may also be deductible if the expense was not written off immediately.
- Repairs and maintenance to assets and business premises.
Expenses must relate to the running of the business and providing the goods or services that your business offers.
Some common expenses that are not deductible are fines and penalties, provisions for employee leave, donations to entities not registered as deductible gift recipients, and entertainment.
There may be some expenses you want to query with us such as private usage of business vehicles, prepaid expenses, bad debts, loss of stock, and borrowing expenses.
What’s on the ATO Radar?
- Travel expenses – travel fares, accommodation, meals. The travel should be directly related to income-producing activities.
- Motor vehicle expenses – keep records for fuel, repairs, and servicing, finance arrangements, insurance, and registration. Keep a logbook to record private travel.
- Home office expenses – this year there is a shortcut calculation for people who have temporarily had to work from home due to COVID-19. This allows for a flat rate of 80 cents per hour for work time. For people who usually work from home, check the ATO home office expenses calculator to maximise the allowable deduction.
- Fringe benefits – have you captured all benefits provided to employees? Vehicle and entertainment benefits are usually scrutinised.
- JobKeeper – if you have claimed JobKeeper for eligible business participants and/or employees, the ATO will look closely at your payroll records.
Instant Asset Write Off
For assets first used or installed ready for use between 12 March 2020 until 30 June 2021, and purchased by 31 December 2020, the instant asset write-off:
- threshold amount for each asset is $150,000 (up from $30,000)
- eligibility extends to businesses with an aggregated turnover of less than $500 million (up from $50 million).
From 7.30pm AEDT on 6 October 2020 until 30 June 2022, temporary full expensing allows a deduction for:
- the business portion of the cost of new eligible depreciating assets for businesses with an aggregated turnover under $5 billion or for corporate tax entities that satisfy the alternative test
- the business portion of the cost of eligible second-hand assets for businesses with an aggregated turnover under $50 million
- the balance of a small business pool at the end of each income year in this period for businesses with an aggregated turnover under $10 million.
Keep Your Records
Remember you need a valid tax invoice for any expenses over $82.50 (including GST) to prove the business expense.
- Keep records for all business transactions (income and expenses), activity statements, and financial reports for at least five years.
- Keep all records relating to employees, contractors, and payroll for at least seven years.
- If your business is a company, keep all records for at least seven years, including director meeting minutes.
Maximise Your Business Deductions
We can check your business’s eligibility for concessions, offsets, incentives, and rebates and make sure your business is calculating taxable income correctly, so you don’t pay more tax than you need to!
With so many businesses affected by COVID-19, it’s important to get the allowable tax deductions right for your business and get in early for your tax return. This way you get more time to plan for payment, or if you are due a refund you will get it quickly.
If you have any further queries, please do not hesitate to contact our office on (03) 5366 0700 or send us an email at email@example.com.