As a business owner in Australia, you can claim tax deductions on the majority of expenses that you have incurred to run your business. You can easily claim the deductions in the partnership, company, or trust tax return. But if you have a sole trader business, you will need to claim these deductions in your personal tax return. 

In addition to this information, you must know the other essential things about claiming tax deductions. It will help you understand why a small business owner must claim tax deductions every year properly. This write-up discusses those points in detail.

What Are The Rules For Claiming The Tax Deductions?

There are three basic rules you must follow to claim business tax deductions, which are as follows.

• The money should have been spent for business purposes and not for any personal use.
• If the expense involves both business and personal use, only that portion can be claimed that was spent for the business.
• Substantial records should be shown.

How Can You Calculate The Income?

While being in business, most of the received income can be assessed for tax purposes. This income includes net earnings generated from the natural running of the business, such as cash income, crowd-funding, personal services income, payments from the Government, income received through sharing economy, payments generated outside ordinary business operations, foreign income, investment earnings, commissions, compensation payments, gratuities, etc. 

However, you should note that the collected GST, prizes, gifts, awards, or income produced from a hobby cannot be an accessible income.

What Are The Reasons Why You Should Focus On Tax Deductions?

You have already known that tax deductions can help you get all the incurred expenses back into your pocket. But besides that real benefit, there are other reasons too you should consider while lodging for tax deductions.

• Tax Deductions Are Better Than Tax Credits

A tax credit is something that directly minimizes the income tax amount you owe. A tax credit can be refundable or non-refundable. Your tax liability can be reduced to zero in case of a non-refundable credit. It can become zero also for a refundable credit, but in that case, you can receive the leftover credit balance as a refund.

On the other hand, a tax deduction decreases a person’s tax liability by minimizing their assessable income. Thus, as the taxable income is itself reduced here, the amount of tax also decreases but that without directly reducing the tax.

However, how beneficial the tax deductions can be will depend on the rate of tax. That is why it is recommended to consult a professional business tax accountant on what to claim.

• You Can Claim Expenses Incurred In Any Business Trip

Travelling for business purposes is not uncommon. But did you know that you can claim these travel expenses as tax deductions? You can claim all kinds of transport fares, including air, train, and taxi fares. 

However, you have to comply with specific rules to claim these expenses incurred in your trip. If you need to stay away for one to two nights, showing receipts and bills as evidence can be enough.

But if you have to stay for six or more nights away from your city, it will be practical to maintain a tour diary or something similar to keep all the records of your business activity details. These details may include:

1. Nature of the business activity,
2. The approximate date and time the activity had begun,
3. The total period the activity lasted,
4. Details of the places in which the business activity was carried out.

One final important point you should note here is that if business and private expenses are included in travel costs, you can claim only for business ones. 

• Invested A Lot In Repair? Don’t Worry

A place of business always needs to have some equipment and machinery for different purposes. And they cannot last forever. At a specific point of time, they will inevitably malfunction, and you need to repair them professionally. Sometimes, repair costs may be huge and cut a significant amount from your business budget. You should not be worried about it as you will always have the option of claiming the repair and maintenance costs as tax deductions.

Repairs and maintenance usually allowed include conditioning gutters, painting, plumbing, electrical appliances repair, repairing fences, leaks, or broken windows. The owner can also claim capital expenses tax deduction under the capital works and general depreciation provisions for property and items. 

But remember, you cannot claim any property improvement like new floor coverings installation, office re-plastering, or repair works for recently-purchased tools or machinery. 

• Deductions Can Also Be Claimed For Salaries And Wages

Another reason why you should give importance to tax deductions is because the salaries and wages you have to pay your employees also fall under this category. If you own a company or trust, a deduction can be claimed against the employees’ salaries. For a partnership business, the rule is also pretty similar. And, for a sole trader, the deduction can also be claimed for any personal super contribution. 

One crucial point you must note here is that you must be aware of the reporting obligations and PAYG withholding to claim a salary deduction to contractors or employees.

Read More: Does Your Small Business Need A Financial Planner For Success And Growth?

• Capital Assets Can Be Beneficial

Business items like motor vehicles, buildings, machinery, and furniture are called capital assets. They are named in such a way because they are involved in the establishment, replacement, enlargement, and improvement of the business structure. Besides these capital assets, other expenses that you can claim here include expenses on small value assets, website designing and maintenance costs, etc. General website costs include registration fees for domain names and charges for server hosting. In addition, depreciation of website building costs can also be claimed overtime. 

Final Words

Running a business, irrespective of its size can be costly. So, claiming tax deductions is always fruitful and mandatory. However, listing all the running expenses and filing them in the tax return will take much time and require professional knowledge. For assistance and professional help, you may get in touch with any business tax advisor.