Tax Basics

Business deductions

Under income tax law, a person carrying on a business can generally claim an immediate deduction for outgoings that are incurred in carrying on their business to produce assessable income, provided these expenses are not of a private, domestic or capital nature. Some capital expenses are deductible over time.

‘Capital nature’ means the expenses of establishing, replacing, enlarging or improving the business structure, as distinct from working or operating expenses.

Some expenses may not be deductible if the tax rules relating to personal services income apply to you.

Business tip
Record keeping

Keep records of your business transactions for five years, or five years after you last used them to prepare a return. For example, a log book may be relied on for up to five years after it was last used to prepare a return. In addition to your business records, you may need to keep evidence of transactions (such as invoices and receipts) and evidence of usage (such as vehicle logs for motor vehicle expenses, airline tickets for travel expenses).

More information
visit Record keeping essentials for small businesses

The following are examples of common expenses that can generally be deducted from gross income:

rent or lease of business premises
hire or lease of plant and equipment
trading stock
decline in value of depreciating assets (depreciation)
tools
employee expenses
registered tax agent fees
interest on borrowed money
motor vehicle expenses
repairs
telephone expenses
bank fees and charges
transport and freight, and
light and power.

Business tip
GST and income tax deductions
You cannot claim an income tax deduction for the GST included in the price of something you purchased if you can claim it as a GST credit in your activity statement.

Prepayments
An immediate deduction may not be allowed if expenditure incurred in carrying on a business is for something that is not wholly provided within 12 months.

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