Claiming business expenses: What’s allowed and what’s not

Not every business cost can be claimed on your tax return, but knowing which ones can could save you real money. Here is the breakdown.

What makes an expense deductible

You can generally claim an expense that is:

• Directly related to how the business earns income – software that manages your clients or bookings, for instance
• Used for business rather than privately, or apportioned if it is both
• Backed by a record – a receipt, an invoice, something you can produce later

What people commonly claim

• Everyday running costs – rent on your workspace, electricity, phone and internet
• Supplies and tools you need to deliver the product or service, from ingredients to packaging
• Equipment such as a laptop, printer or coffee machine. Larger items are claimed over time as depreciating assets rather than all at once

Two worked examples. A $50 monthly phone plan is $600 a year; use the phone 60% for business and roughly $360 is deductible. A $2,000 laptop used 80% for business gives you 80% of its cost, claimed over the eligible period.

What is not deductible

• Private costs – gym memberships, groceries, clothes you would wear outside work
• Fines and penalties, including a speeding ticket picked up while driving for the business
• Entertainment – client meals and nights out, unless it is a staff benefit meeting the fringe benefits rules
• GST you have already claimed on a BAS. You cannot claim it twice
• Payments made without following PAYG rules, such as paying a contractor without meeting the reporting obligations

Splitting business from private

Where an expense covers both, it has to be apportioned honestly:

• A personal laptop used 60% for business means 60% of the related costs
• A home office is divided by the space it occupies and the hours you work in it
• A car used for client visits and the school run needs a log of the business kilometres

Deductions people miss

• Technology – new software, digital tools, systems upgrades
• Staff training – eligible courses and upskilling, for you or your team
• Energy efficiency – LED lighting, efficient appliances, smart systems

These incentives change from year to year, so it is worth checking what is currently available rather than assuming last year’s rules still apply.