If you own or run a small business, then you are eligible for certain tax deductions as result of the expenses you incur during your income-earning activities. For the purposes of tax, the Australian Taxation Office (ATO) considers you a small business if your annual turnover is less than $2 million. If you fall into this category, then you can claim most expenses related to the running of your business.
Here at OTA there is nothing we love more than an entrepreneurial attitude, so we thought we’d let you foster your entrepreneurial side, while we provide a brief rundown on small business tax deductions.
Motor Vehicle Expenses
If you have to travel by car for the purposes of your business, then you can claim a tax deduction for your motor vehicle expenses. There are a number of methods that you can use to calculate your motor expenses, including the cents per kilometer calculation method, or by keeping a vehicle logbook for a 12-week period. For a more in-depth explanation on how to claim motor vehicle expenses, take a look at our blog post, How to Claim Work Related Car Expenses.
If you run a website as part of your business model, you are able to claim all costs incurred, including purchasing server hardware, buying and developing software and paying website hosting fees. If your costs amount to less than $1,000, you can claim an immediate deduction.
You can claim costs, such as accommodation, meals and incidentals that you incur while travelling for work. It’s important that you keep detailed evidence of all expenses. If you travel for one night or more you only need written evidence to substantiate your claim. If you travel for six nights or more you must keep a travel diary to record all your business activities during those travels including:
- The date and time of the activity
- How long it lasted for
- A description of the activity
- Where the activity took place
If the trip was for personal and business reasons, you can only claim the portion of the expenses that were incurred during income earning activities. Your travel diary will be the evidence you provide to demonstrate how you worked out the portion you are claiming.
You can claim operating expenses, such as office stationary and wages, during the year you incur them. When claiming on salary and wage expenses, the way your business is structured will affect what you can claim.
- If you operate as a company or a trust you can claim a deduction for any salary or wages that the company pays to you.
- If you operate as a partnership, you are not considered an employee and cannot be paid a wage, therefore you can only claim for the wages you pay to employees.
- If you operate as a sole trader, you are the owner of the business and not an employee and therefore you can only claim for the wages and salary you pay your employees.
You can also make a claim for super contributions you make to employees or certain subcontractors. If you are a sole trader you can claim for your personal super contributions on condition you have not earned more than 10% of your income through another means of employment.
Capital expenses refer to cost of purchasing assets such as machinery and equipment. These expenses cannot be claimed immediately but instead are claimed over a period of time based on their decline in value. Businesses are entitled to a 100% expense write off for assets purchased before 12 May 2015, with a cost less than $1,000. The 2015 Federal budget increased that amount to $20,000 for assets purchased after 12 May 2015. If the equipment you are claiming is used for personal as well as business activities you must apportion your claim accordingly.
Home Office Expenses
If you run your business from home or there is a room set aside solely for the purpose of income-earning activity you may be entitles to claim a number of tax deductions based on a percentage use method. These expenses may include:
- Utility bills, such as heating, cooling, internet and water
- Business phone calls and line rental but not installation
- Decline in value of equipment such as computers, photocopiers, desks and filing cabinets
- Depreciation in value of carpets, curtains, light fittings, and so on
- Occupancy expenses, such as rent, mortgage and interest rates
When claiming for home office expenses, all claims should be apportioned on a private/business basis. This is often done by basing the claim on the percentage of space dedicated versus the percentage for everyday personal use.
The other option is to use the ATO approved $0.52 claim per hour for work undertaken at home that relates to running your business. This rate covers the cost of light, heating, chair and desk.