What are business expenses?
Business expenses are the ordinary and necessary costs associated with running a business. They can include many items, from office supplies and raw materials to employee salaries and rent for commercial space.
Any for-profit business can claim their business expenses and deduct them. This reduces the overall amount of a business’ taxable income.
What are the 4 types of business expenses?
Startup
Business startup costs are the expenses associated with creating a new business. These costs can vary depending on the type of business, but they may include:
market research
advertising
product development
permits and licences
purchasing equipment or raw materials.
Operating
Business operating costs are the expenses that a business incurs on a day-to-day basis. These include:
rent
utilities
salaries.
Capital
Capital costs are those expenses that are related to the acquisition or improvement of long-term assets, such as:
land
buildings
equipment.
Inventory
Inventory cost refers to the cost of acquiring and managing inventory. These expenses may include:
the cost of raw materials
transportation
storage.
Business expenses you can claim
Motor vehicle
If you use a motor vehicle for business purposes, you can claim your motor vehicle expenses as a business deduction. Deductible expenses might include:
fuel and oil
repairs
lease payments
registration
insurance cover premiums
loan interest.
You can claim costs from motor vehicles you provide to an employee or associate (as part of their employment package) as long as you operate your business as a company or trust.
What you can’t claim:
If you use your motor vehicle for business and personal purposes, you can only claim expenses related to the business use. You must be able to justify the percentage you are claiming. Keeping a log of whether each journey was business or personal, with dates, odometer readings and kilometres travelled is a practical method to stay compliant.
With claiming depreciation for cars, there are a few different methods you may use. If you use the cents-per-kilometre basis, you can't also claim a dedication under the simplified depreciation method.
You can't claim expenses for a vehicle that you don't own, lease or have under a hire-purchase agreement.
Repairs, maintenance and replacement
Repairs, maintenance and replacement costs are the costs of restoring the efficiency or function of an asset without changing its nature.
You can claim repairs, maintenance and replacement for property or items you don't own but are an integral part of your business.
What you can’t claim:
You can’t completely reconstruct your property or item to the point where it has a new purpose and still claim it as repair, maintenance or replacement.
Salaries/wages
You can claim a tax deduction for your employees' salaries or wages. To do this, you must comply with the pay-as-you-go (PAYG) withholding obligations and report each payment.
What you can’t claim:
Unless your business is structured as a company or trust, you can't pay yourself a salary or wage and also claim deductions for it.
Super contributions
You can claim tax deductions for super contributions you make for your employees and certain contractors. You can use the ATO’s Employee or contractor decision tool to better understand your obligations.
What you can’t claim:
You can’t claim super contributions you make for yourself but may be able to claim a deduction in your personal tax return for your personal super contributions.
Travel expenses
You can claim tax deductions for travel expenses if you or an employee travel for business purposes. If you are a sole trader or partner, you must keep a travel diary and record overnight business travel expenses.
Travel expenses you can claim are:
airfare, train tickets, taxis, car hires or fuel
accommodation
meals, for overnight trips.
What you can’t claim:
any portion of the trip that was a personal holiday
expenses for any family or friends who came along on the trip
souvenirs or gifts
entertainment.
Home-based business expenses
If you’re working out of your home or your home is the base of your business, you can claim home-based business expenses. This means you can claim expenses like:
home phone
internet
occupancy expenses like rent, mortgage and insurance, with some restrictions
utilities.
What you can’t claim:
Any expenses for the personal use of your home, such as landscaping.
Digital products
You can claim digital products and technology that you use for your business but should apportion your expenses between business and private use. Your digital products will fall under two types of expenses: operating and capital.
Operating expenses include:
the cost of your internet
any necessary software subscriptions
website maintenance costs or other costs associated with running your website
cloud storage.
Capital expenses include:
computers and accessories
mobile phones
tablets
POS systems
the cost of developing a website.
What you can’t claim:
The share of any digital product used in a personal capacity.
Depreciating assets
You can claim tax deductions for assets that have a limited life expectancy. These assets are reasonably expected to decline in value over time. You can claim assets that you personally own but use for your business, as well as those purchased by your business.
Examples of depreciating assets include:
mobile devices
machinery and equipment
furniture and other furnishings
computers and accessories
landlines
mobile phones.
What you can’t claim:
If you also use an asset in a personal capacity, you can’t claim for the total asset. For example, if you use a computer for half business use and half personal use, you can only claim a depreciation on half its cost.
Other operating expenses
There are many other operating expenses that you may claim. These might include:
debts
legal expenses
tender costs
bank fees
annual statutory fees (you can't claim penalties and fines resulting from breaches of Australian law)
union dues and subscription fees to associations that fall under trade, business or professional segments
interest on money borrowed (though restrictions apply)
clothing expenses if necessary for your industry
gifts and donations to organisations that have a deductible gift recipient status
expenses relating to education and technical or professional qualification
subscription costs for business or professional journals, information services, newspapers and magazines
any items that protect you or your employees from a health or injury risk in your work environment
protective gear such as sunscreen, sunglasses, hats if your business requires outdoor work.
If you are unsure whether you can claim an expense, consult an accountant or tax agent.
When can you claim business expenses?
The type of expense you are claiming will determine when you claim it. You can file operating expenses in the same year your business incurs them.
You can claim capital expenses over a longer period. Currently, there are temporary full expensing rules (part of the JobMaker Plan introduced in the 2020–21 Budget), which may make your business eligible to claim an immediate deduction for the business portion of the cost of an asset.
If you have a prepaid expense (an expenditure you have paid for, which will take time exceeding 12 months to complete), you can deduct the expense within the eligible service period, not exceeding 10 years.
How to keep track of business expenses
A spreadsheet for business expenses
Knowing how to keep track of business expenses electronically will help you stay organised. The ATO accepts images of receipts or paper records saved digitally, so you could use an online spreadsheet for business expenses with an image of your receipt included.
Receipt scanner
Using receipt scanning software can help you keep track of expenses while removing the need to store paper records.
Cashflow statement
A cashflow statement is a record of your incoming and outgoing cash flows. This statement will allow you to plan for the future by showing seasonal trends and showing when you need additional cash to cover your expenditure.
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Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.