Common business tax deductions

Knowing whether your business can claim a particular deduction is important because you can only claim what you’re entitled to.

You can claim a tax deduction for most expenses from carrying on your business, as long as they are directly related to earning your assessable income. 

Remember these three golden rules 

1. the expense must have been for your business and not for private use


2. if the expense is for a mix of business and private use, you can only claim the portion that’s used for your business


3. you must have a record to prove the expense and show how you worked out the business portion. 

Let’s go into some common expenses in a bit more detail.

Salary, wages and super

You can claim a tax deduction for salaries and wages you pay to workers (as long as you’ve complied with the PAYG withholding and reporting obligations for each payment), in addition to super contributions you make on time to a complying super fund or retirement savings account. 

If you're a sole trader, you can usually claim a deduction for your own super contributions in your personal tax return.

Don’t forget, the rate for Super Guarantee (SG) contributions increased from 10% to 10.5% from 1 July 2022. 

The $450 monthly eligibility threshold for paying SG contributions has also been removed, which means you must now make contributions to eligible employees regardless of how much they earn. However, employees under 18 will still need to work more than 30 hours in a week to be eligible for super. 

For more information, visit ato.gov.au/employers and ato.gov.au/PAYGWdeductions

COVID-19 expenses

Remember you can claim a deduction for items you’ve purchased to protect staff from transmissible diseases such as COVID-19. For example, hand sanitiser, sneeze or cough guards, face masks, gloves, antibacterial wipes and other cleaning supplies that are used for business purposes.

You can also claim the cost of rapid antigen tests purchased for employees so they can attend work and you won’t need to pay fringe benefits tax (FBT), providing you have the appropriate records. However, you may need to pay FBT on items that allow your employees to work from home. For more information, visit ato.gov.au/COVIDFBT

On the flip side, COVID-19 business support payments, grants or stimulus from the government are generally taxable and need to be included in your tax return. For more information, visit ato.gov.au/COVID19supportpayments

Motor vehicle expenses

When it comes to motor vehicle expenses, your business structure and the type of vehicle you are claiming for can affect how you calculate your claim. 

If you operate your business:

• as a sole trader or partnership, and are claiming for a car, you can use either the cents per kilometre method or the logbook method


• as a sole trader or partnership, and are claiming for another vehicle, you must use the actual costs method 


• as a company or trust, you must use the actual costs method to work out motor vehicle expenses, regardless of the type of motor vehicle.

Common expenses you can claim include fuel and oil, repairs and servicing, interest on a motor vehicle loan, lease payments, insurance cover premiums, registration and depreciation. 

If the business vehicle is a car, there’s a limit on the cost you can use to work out your depreciation claim. For the 2021–22 income year, the limit is either $60,733, or the cost of the vehicle if it’s less than this amount.

Don’t forget, allowing an employee to use a work car for private purposes may be subject to FBT.   

For more information, visit ato.gov.au/motorvehicleexpenses or ato.gov.au/carfringebenefits

Home-based business expenses

Your business structure also affects how you claim home-based business expenses. 

Sole traders and partnerships can claim running expenses if you operate some, or all, of your business from or at home. Running expenses include things like the cost of electricity, phone, internet and cleaning, and the depreciation of (and cost of repairs to) equipment, furniture and furnishing. Remember you can only claim the business portion of your expenses according to the area of your home that is used for business purposes.  

If you have an area of your house set aside for your business and it has the character of a ‘place of business’, you may also be able to claim occupancy expenses, such as mortgage interest or rent, council rates, land taxes and house insurance premiums. However, keep in mind that there may be capital gains tax implications if you sell your home in the future.

Companies and trusts should have a market-rate rental contract with the owner of the property. This will determine which expenses you pay for and can claim as a deduction. 

The methods you can use to calculate expenses varies. It’s a good idea to keep complete records of all expenses (instead of a representative period) to give you more flexibility.

For more information, visit ato.gov.au/homebasedbusiness

Digital product expenses

Our small business random enquiry program tells us that small businesses who use fit for purpose digital solutions are more likely to get their reporting right. So it’s worth knowing that you can claim a tax deduction for the cost of digital products used in running your business. 

For example, operating expenses such as internet service provider fees, software subscription fees or cloud storage, and capital expenses such as computers, computer accessories, mobile phones, tablets, point-of-sale machines or in-house software. 

If you use a digital product for business and private purposes, remember to only claim a deduction for the business portion of the expense.

For more information, visit ato.gov.au/digitalexpenses

Legal expenses

Legal expenses may be an expense for your business as well. These can include things like preparing a business lease and trying to recover misappropriated funds or debts from other businesses or individuals.

Temporary full expensing

Temporary full expensing has been extended to the 2022–23 income year, which means you can claim an immediate deduction for the business portion of the cost of an asset in the year it is first used or installed ready for use for a taxable purpose. 

For more information, visit ato.gov.au/depreciation

Ending words

The most important thing you can do to make the most of your deductions is to understand what you may be able to claim, ensure you’re entitled to claim them, and keep complete and accurate records to back up your claims. You need to keep most records for five years and be able to show how you worked out your claim – especially if an expense was for a mix of business and private use. 

You can find a wealth of information about record keeping for businesses at ato.gov.au/recordkeeping

Remember you can always reach out to a trusted tax professional if you would like more information tailored to your circumstances.