Tax Deductions for Small Business
One of the most common questions asked by new business owners is "what can I claim”?
To calculate the amount of profit your business pays tax on, is determined by reducing your business income by eligible deductions. Eligible expenditures must be substantiated, and be relevant to earning your business income, be legal and not be expressly prohibited.
Let’s look at what you can claim:
Stock and the costs of production – these will include purchase of stock, materials and supplies to sell.
Business activity expenses these are recurrent running expenses such as advertising, phones, internet, licenses and government permits, commissions, business Insurance etc
Staffing costs these are the cost of hiring staff, wages, workcover, Superannuation, training and staff development, uniforms (which comply with rules)
Financing costs these are interest on business loans and overdrafts, bank fees and guarantee costs, finance lease expenses
Housing costs these are rents on business premises, storage facilities and the like. Also include rates, insurance, repairs, body corporate fees.
Transport these include freighting in / out of retail stock or materials, motor vehicle expenses (conditional), motorised equipment eg, forklifts etc,
Business portion of private expenses this relates to normally private expenses that are partially attributable to business use. They can include, motor vehicles, home office claims, home electricity, telephone & internet claims, and travel expenses where a business trip is mixed with a holiday.
What you can’t claim:
Personal expenses these are any that are 100% relevant to private or domestic use. They also include such items as grooming and a driver’s licence
Fines as levied by a government authority – late lodgement fees, speeding fines etc.
Clothing that is not a registered uniform or protective in nature
Loan repayments only the interest component of a loan repayment is deductible, and only if the loan was for a purpose that was 100% business use. The principle portion is not deductible
Substantiation of Eligible expenses
It’s important to realise that confirmation of your claims has to be substantiated. This can be done in several ways, but the easiest is to keep a records of the transaction invoice or receipt.
Other important substantiation is a vehicle logbook for motor vehicles. Generally a commercial vehicle will not need a logbook, however, if there is any private use, a logbook is generally recommended.
Form of records all records can now be kept in a digital format if preferred. The one condition is that they are able to be clearly read when required. Remembering this could be as much as 5 years down the track, it’s important to have digital records stored reliably.
If you have any questions or queries, please contact us for more assistance.