Business deductions

Advertising and sponsorship |  Bad debts |  Borrowed money |  Business travel |  Car expense deductions |  Fringe benefits |  Home work claims |  Insurance |  Plant and equipment (depreciating assets) |  Repairs, replacement, maintenance |  Superannuation contributions |  Salary and wages |  Tax management expenses |  Telephones |  Theft |  Tax offsets

You've got to spend money to make money, right? And if you spend it to produce 'assessable' income, then your business will usually be entitled to a tax deduction. There are of course the deft and nifty tax deductions that some are on the lookout for, but in reality there are legitimate, not-to-be-forgotten deductions that almost every business can take advantage of.

The basic caveat of course, to keep your nose clean and yourself out of hot water, is that you need to show you are actually 'out-of-pocket', and that the expense has been incurred to run your business. Here then are some tax deductions you may be able to claim:

Advertising and sponsorship
Costs to push your brand and garnering publicity for your business is a deduction, and you can claim expenses you make in this area as well as advertising or sponsorship to sell 'trading stock' and to hire staff. Take care to ensure that the costs incurred do not fall within the definition of 'entertainment' as such expenditure is typically non-deductible.

Bad debts
A debt that is unpaid and deemed to be a 'bad' debt is an allowable deduction as long as it was included as assessable income in the present or even a previous income year, and that it is written off as bad (uncollectable) in the same year that it is claimed as a deduction.

Borrowed money
Expenses racked up in order to get the borrowed funds, are able to be claimed as a deduction. The main proviso is that the money must be used to produce assessable income. These expenses, which can include legal costs, registration fees, valuation costs, fees to guarantee an overdraft and any commissions paid, are generally also deductible. But you may have to spread the deductions over more than one year, depending on the extent of the expenses, to cover for example the period of the loan. These deductions are quite separate from the interest actually incurred on the borrowed funds, which is also deductible if the borrowed money is used to produce income.

Business travel
You need to record and document all particulars, but travel for business purposes can usually be claimed. So keep all receipts and your itinerary or diary, and of course airline tickets will have pertinent details. Note the nature of the travel, its purpose, and where, when and for how long (and look out for any personal activities that are mixed in as these expenses are non-deductible).

Car expense deductions
You can claim a full deduction for any expenses your company incurs while running a vehicle, either leased or owned, provided the vehicle is used only for business purposes. If your business operates as a sole trader or partnership, you can claim certain proportions of deductions for vehicle expenses, but they are subject to substantiation rules.

Fringe benefits
You can generally claim a deduction for any costs involved with providing a fringe benefit to an employee. See the relevant information on fringe benefits tax.

Home work claims
If your work is done from home, or partly home-based, you can usually claim deductions for expenses such as interest, telephone, insurance and a portion of running expenses like heating, lighting or cleaning. But see 'Home based work' for details.

Insurance
Workers compensation insurance premiums are deductible, as are insurance costs for fire, business-use cars, public liability, theft and loss of profits.

Plant and equipment (depreciating assets)
Larger items like cars or even buildings can be claimed over time as depreciating assets (see all the information you need here). And you may also be able to claim (over a five year period) certain capital costs in setting up or ceasing a business, as long as an outright deduction is not able to be claimed for that expenditure.

Repairs, replacement, maintenance
A deduction is available for the upkeep of machinery, tools or premises used to produce assessable income (provided they are not 'capital' costs). These deductions include things like painting, plumbing and electrical maintenance, upkeep to windows and fences, guttering and machinery maintenance. Generally it means fixing defects, not totally replacing an item, and does not include improvements or work done immediately after acquiring an asset.

Superannuation contributions
You can claim a deduction for a contribution made to your own super fund if self-employed, although care must be exercised if you also have some earnings from employment upon which super contributions have been paid by the employer. Contributions to an employee's fund should also be deductible. Employers legally have to contribute to employees' super anyway under the superannuation guarantee laws.

Salary and wages
Operating as a trust or a company means you can claim a deduction for salary paid to employees or to yourself, provided the salary is in respect of duties connected with the business. Partnerships can't claim for salary paid to a partner, but a deduction is available for salary paid to other employees. Sole traders can't claim for salary paid to themselves (and you can't claim for amounts taken from the business for private purposes).

Tax management expenses
Managing your business tax affairs can cost, and you can claim these as deductions. This includes paying a bookkeeper, having a tax agent prepare and lodge tax returns and activity statements, attending to a tax audit or the costs of appealing or objecting to an assessment.

Telephones
For a telephone you use for business only, you can claim for calls and rental, but not installation. If the phone is used for both business and private calls, you're able to claim all business calls and a proportional part of the rental. An itemised phone account will guide this, but you can also base the claim on using a representative four-week period to get an average rate for the whole year.

Theft
Losses incurred by theft or stealing by an employee may be allowable deductions.

Tax offsets

It's a reduction Jim, but not as we know it ...

Apart from out-and-out tax deductions, there are other ways to make a difference to your tax bill. Called offsets, these are another method to reduce tax. But unlike a deduction, an offset doesn't lessen 'taxable income', just the tax owing on it.

Offsets are handy for levelling out the tax playing field (as with the offset for seniors or people in remote areas), stopping potential double-taxation (as with franked dividends) or providing an incentive (as with mature age workers or to get people to take up private health cover).

So an offset can reduce tax owing, but will not give rise to a tax refund ­­– with four exceptions; private health insurance, franking tax offset (where the issuing company has already taken care of tax), and the baby bonus.

Other offsets are for heritage conservation, spouse super contributions, maintaining a dependant or medical expenses over a certain threshold. And the foreign income tax offset may be available where source income has been taxed by another country, but the amount able to be claimed can't be more than what would be owed were it derived and taxed in Australia.

Related story: Working from home: Claiming electronic devices

Here is a Tax Office video on deductions and offsets.