Although it can be a confusing area for many business owners, claiming business expenses against your income is important because it will save you money by lowering your tax bill.
The number one rule about claiming business deductions is that the expense must be incurred in deriving or earning assessable or business income. There is no definitive list of claimable business expenses because there must be a connection or relationship between the expenditure being claimed and the income being derived or earned. If there is no connection or relationship then there is no deduction.
- An electrician may purchase a ladder to access wiring in the roofs of houses, which is directly relatable to earning income and therefore claimable.
- However, if the electrician purchased a ladder to trim trees around his home then there is no relationship between the expense and earning income, and it would not be claimable.
- If a business owner takes a customer out for lunch to discuss (for example) supplying additional product then the cost of the lunch is connected to earning income and is claimable.
- Conversely, if a business owner takes a friend who also happens to be a customer out for lunch but the purpose is purely social rather than to discuss business then there is no connection to earning income and the lunch is not claimable.
- If a business owner takes a prospective customer out for a meal or drinks with the hope of converting them into a client in the future then a deduction can be claimed because there is a connection between the business and the entertainment expense incurred.
Claimable Expenses: Motor Vehicles
If a vehicle is used for business you can claim a deduction for tax purposes. Expenses can include:
- Repairs and maintenance
If a vehicle is dedicated solely for business (i.e. no private usage) then 100% of the costs incurred will be deductible for tax purposes.
If a vehicle is used for both business and private usage then an apportionment needs to be made between the business travel which is deductible for tax purposes and private expenditure which is not tax deductible. In this case a log book should be maintained for a representative 3-month period illustrating business and private travel, from which the percentage of business travel can be calculated and claimed.
Unless the home is a place of business, travel expenses cannot be claimed travelling from home to a job. If the home is a place of business then travel from home to a job can be claimed.
Claimable Expenses: Gifts
Gifts to suppliers and customers are 100% deductible for tax purposes. For example if you gift a bottle of wine or tickets to an event to a customer to thank them for their loyalty then the expense will be deductible.
Please contact us if you have questions regarding claimable expenses relating to your business.