The Essential Guide to Small Business Tax Deductions

There are a variety of deductions that small businesses can take during tax time.

Taxes for a small business are unavoidable, but that does not mean your struggle to understand the ins and outs is also unavoidable. Our expert small business accountants have prepared this guide to offer you the information you need to get your taxes sorted and filed painlessly come tax time.

How Do I Know What Expenses are Deductible?

You should ask yourself a few questions regarding what you plan to deduct. This is a general litmus test for deductibles.

  1. Did the expense relate directly to your job, business, or an income-generating activity?
  2. Did you pay for necessities without being reimbursed?
  3. Can you prove the expense with receipts or bank statements that show the payment?

What Can Be Claimed as a Tax Deduction for a Small Business?

This is a common question that usually bears repeating as the Australian Taxation Office (ATO) does amend the tax laws from time to time. If you fail to keep up with the ordinances, you can lose money and land in hot water with the ATO.

The following is a list of basic small business deductions in Australia:

  • Business travel expenses
  • Claiming deductions for PAYGW payments
  • Digital product expenses
  • Home-based business
  • Motor vehicle expenses
  • Repairs, maintenance, and replacement expenses
  • Workers’ salaries, wages, and super contributions
  • Depreciating assets and other capital expenses

Other operating expenses that can be small business tax deductions include:

  • Bank fees
  • Insurance
  • Last year’s tax preparation fees
  • Marketing
  • Office Stationery
  • Purchasing stock
  • Tax-related expenses
  • Utilities

What You Should Know About Immediate Tax Deductibility for Small Business Start-Up Costs

Your business may be able to claim deductions for the total amount of some start-up expenses occurring in the same income year.

These deductible start-up expenses include professional, legal and accounting advice as well as government fees.

You should know that certain start-up expenditures can be immediately deductible if:

  • The fee relates to a proposed business
  • The cost is incurred in the income year the deduction is claimed
  • The expenditure relates to obtaining advice or services relating to the proposed structure or the proposed operation of the business
  • The expenditure is a payment to an Australian Government agency of a fee, tax or charge relating to setting up the business or establishing its operating structure

Additionally, in that income year, you claim the deduction if:

  • You were a small business entity (with an aggregated turnover threshold of less than $50 million)
  • You were not connected with or an affiliate of another entity that is not a small business

All expenses must be necessary to the operation of your business.

Facts About the $150k Instant Asset Write-Off for Eligible Businesses

A useful write-off available for eligible Australian businesses is the $150,000 Instant Asset Write-Off allows companies that have an asset write-off of up to $150,000. The write-off is for assets costing less than the instant asset write-off threshold ($150,000), which are purchased and used in the year that the write-off is claimed.

To be eligible, your business must:

  • Have an aggregated turnover of less than $500 million
  • Your assets must have a value of less than $150,000
  • The assets must be bought and used in the same year as the write-off

Understanding Tax Concessions

To qualify for small business tax concessions, your company must have an annual turnover of less than $2 million. Once you confirm your eligibility as a small business entity, you can choose the tax concessions that work best for you. More information is available on the ATO website.

The Instant Asset Write-Off

Eligible businesses can claim immediate deductions for the business portion of an asset in the year the asset is first used or installed for use. You can use the instant access write-off for:

  • Several assets if the cost of each asset is less than the relevant threshold
  • Assets that are new and second-hand

Assets that are excluded from the simplified depreciation rules are not eligible.

Is Business Insurance Tax Deductible?

According to the ATO, you may be able to deduct the following types of business insurance.

  • Income Protection Insurance – It must be a separate policy from your superannuation.
  • Car Insurance – This may be deducted if you use your vehicle in performing your job or running your business. If you use the cents per kilometre method, all of the costs are incorporated, and you will have no separate deduction for your car insurance. The logbook method allows you to claim a work-related percentage of your insurance.
  • Home Insurance – You can claim a portion of your home insurance if your home is your principal place of business and you have a dedicated workspace for your company in your home.
  • Tax Audit Insurance – If you are in the unfortunate position of being audited by the ATO, you will see the value of tax audit coverage. Should you be audited, the cover will take care of the professional fees associated with audits and other official investigations. Being able to deduct this insurance makes it more attractive.

Can I Deduct Bank Fees?

Some bank fees are deductible, and others are not. If you can demonstrate that you incurred the fees as a result of trying to earn or access your income, you can deduct the fees. However, if your account makes no interest and exists to pay your bills, you cannot deduct any fees associated with the account.

What Cannot Be Deducted?

The list of deductibles is extensive and may leave you wondering if any expenses are not deductible. The answer is yes. Here are the top examples of items that cannot be deducted. This includes:

  • Entertainment Expenses
  • Expenses Relating to Earning Income That is Not Assessable
  • Private or Domestic Expenses, Like Childcare Fees or Buying Clothes for Your Family
  • The GST Component of a Purchase if You Can Claim it as a GST Credit on Your Business Activity Statement.
  • Traffic Fines

If you are unsure whether an expense can be deducted from your taxes, consider if the expense is directly related to your company earning assessable income. Alternatively, let one of our experts handle this for you.

**Please Note**

The information provided in this post is for informational use only. It is not considered legally binding financial or tax advice and should not take the place of a consultation with a tax or financial professional.


What expenses can I claim as a small business tax deduction?
You can claim a tax deduction for most expenses you incur in carrying on your business if they are directly related to earning your assessable income.

Can I claim a tax deduction for pre-paid business expenses?
Yes, a small business can get an immediate tax deduction for certain pre-paid business expenses made before the end of the financial year.

What is the temporary full expensing of business assets?
Small businesses (with aggregated turnover of less than $10 million) can immediately deduct the full cost of eligible assets costing less than $20,000.

What is the additional 20% deduction for spending that supports electrification and more efficient use of energy?
Small businesses (with annual turnover of less than $50 million) can deduct an additional 20% on spending that supports electrification and more efficient use of energy, such as electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps.

Can I claim a tax deduction for home office expenses?
Yes, you can claim a tax deduction for home office expenses if you use a part of your home exclusively for business purposes.
Can I claim a tax deduction for travel expenses?
Yes, you can claim a tax deduction for travel expenses if they are directly related to your business activities.
Can I claim a tax deduction for entertainment expenses?
Yes, you can claim a tax deduction for entertainment expenses if they are directly related to your business activities.
Can I claim a tax deduction for donations to charity?
Yes, you can claim a tax deduction for donations to charity if they are made to a deductible gift recipient (DGR).
Can I claim a tax deduction for bad debts?
Yes, you can claim a tax deduction for bad debts if they are debts that you have attempted to recover but are unlikely to be paid.

Can I claim a tax deduction for legal expenses?
Yes, you can claim a tax deduction for legal expenses if they are incurred in the course of carrying on your business.

Mace Turco

Mace Turco

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Mace has always had a passion for business, and he loves working with clients who are driven and have ambitious business goals. His qualifications include an AIPA from the Institute of Public Accountants and a Bachelor of Commerce from The University of Western Australia for Corporate Finance and Financial Accounting. In 2020 Mace was awarded the 30under30 Award in the Business Advisory Category, a National Award hosted by Accountants Daily.