As a business owner, you may be wondering what qualifies as a business expense? The Australian Tax Office (ATO) dictates three rules to follow when questioning is something can be claimed:
- The expense must be for your business, not personal use.
- If the expense is both business and personal, you can only claim the portion of business use.
- You must have records to prove everything.
Motor Vehicle/Mileage Rate
When working it may come up that you need to use your personal car for work purposes. In this case, you will be able to claim a portion of the associated vehicle costs. Employees, whether self-employed or under an employer, can claim the cost of using their car for business but only that portion. The ATO requests a logbook is kept to record business and non-business use to distinguish what can be claimed. Additionally, employers can claim the cost of reimbursing employees for use of their personal car for work and all expenses for a company car.
Use of Home
If you have a separate area in your home for work purposes you can claim a portion of your household expenses. To do this, you will need to keep records of the expenses you want to claim and also a diary detailing work undertaken at home. You will be able to claim a portion of the following that relates to work:
- Rent
- Utilities (i.e Electricity, Water, Gas etc.)
- Internet Fees
- Depreciation of Fees
- Repairs and Maintenance
Home Telephone
If you use your phone (mobile or landline) for business purposes you can claim a portion fo the phone bill that equates to the portion of business use. Similarly to household expenses, you will need to keep a log/diary that details what usage relates to business purposes.
If you work out of your home and have separate business and personal lines, you can claim the full cost of the business but none of the personal.
Travel Expenses
The ATO is specific in what can be claimed for travel expenses. You are able to claim for the following:
- Travel between business places, either from one job to another (seperate business) or from one location to another (same business)
- Traveling from your regular place of work to an alternate location (i.e a clients premises)
- Overseas travel for work related purposes
However, this is really all you can claim. You won’t be able to claim the following
- Travel from your home to your usual place of work (unless your home is used as a work base)
- Work outside of normal business hours (i.e shift work or overtime)
- Doing minor work tasks, such as collecting mail
- Having limited public transport in your area
Business Supplies
Business owners can claim any costs associated with purchasing business supplies can be claimed, including:
- Stock purchases
- Raw materials
- Stationary and Office Supplies
- Cost of Repairs
- Replacement of Small Asset Items
Rent and Associated Costs
If you pay rent for your business premises, you will be able to claim this back. Additionally, you can also claim electrical, phone and other utility expenses for your business premises.
Employee Wages
As a business owner, you can typically claim a tax deduction for salaries and wages paid to your employees. This also includes wages paid to shareholders where PAYE has been deducted and declared to IRD but doesn’t include drawings.
Subcontractors
Employers who sub-contract work to external professionals can claim the full amount of the payment on tax as long as the work relates to generating income