Business expenses: when can you claim?
If you are running a business of any size the Australian Taxation Office (ATO) allows you to claim, in full or in part, the tax paid out on business expenses. There is no definitive list of what can and cannot be claimed at the end of the year but some products or services are certainly more likely to be approved by the tax office than others.
During the tax year ordinary and necessary expenses, such as those for products that your business could not remain competitive without, are claimable as deductions. Naturally, you will need to present your accountant or the ATO with extensive documentation to lodge a claim.
What exactly can I claim as a business expense?
The following is a statement from the ATO: “Under income tax law, a person carrying on a business can generally claim a deduction for expenses incurred in carrying on the business”.
That means if you need to spend money in order to conduct your business, you can usually claim some or all of it back somehow. There are some basic rules however: you must have actually paid or committed to spending the money, and the expense must be related to your business and you must be able to show why you needed to spend the money to carry on your business.
Broadly speaking, these expenses might include rent as well as salaries and allowances paid to the employees, entertainment expenses for staff and various other overheads, such as phone and internet costs. Other things you might not be aware that could be claimed include, for example, interest on borrowed money or payments on superannuation. Entertainment for prospective clients could also be included. If your business deems it necessary to take visiting businessmen or women for a night on the town, keep an accurate record with proof that it was not just for pleasure purposes. This includes the receipt for the events with the purpose and intended business outcome written on them.
Another big area for claims is the tax incurred on vehicles and transportation. If using these vehicles is essential for your business tax can be claimed back in various areas. For a more detailed explanation of this click here.
There are many items that can count as deductions when you make your claim. These include expenses in the year incurred, as well as depreciation in the value of business assets, such as machinery and computers, over a number of years. You can also often offset tax losses from previous years and you may be entitled to credits and tax offsets in the current year. For an extensive rundown click here.
If your business is new either the date you acquired your ABN or the date you opened a business bank account is the date you can start your claim from. You should obviously keep a record of all expenses, but you should also keep a record of tax paid in case you need to verify it.
It’s a complex area and you do not need to know everything about everything. If you are busy running your business you also probably don’t have time to learn every little nuance of Australian tax law. A registered accountant can guide you through the process and calculate your expenses for you to ensure you are claiming all relevant deductions.