Managing a small business comes with many expenses but understanding small business tax deductions is key to lowering costs and improving cash flow. Whether you're a sole trader, part of a partnership, or running a small company, taking advantage of ATO tax deductions ensures you’re not paying more tax than necessary.
From deductible business expenses to small business tax breaks designed to support growth, knowing what to claim can make a big difference. This guide will walk you through which deductions you can claim, how to lodge your tax return, and what mistakes to avoid. We will also offer some expert tax tips for small businesses to get the most out of their deductions.
What Are Tax Deductions?
Tax deductions are expenses directly related to running your business that you can subtract from your income to reduce the amount of tax you owe. For small business owners, these can include costs like office supplies, utilities, travel, and advertising. Claiming the correct small business tax deductions helps reduce your taxable income, improves your cash flow, and supports long-term growth. The ATO tax deductions system is designed to support business investment while maintaining compliance.
To qualify, expenses must be business-related, not personal, and supported by accurate records such as receipts and invoices. Understanding these rules is essential to ensure you're claiming deductible business expenses correctly and within ATO guidelines.
Common Tax Deductions for Small Businesses
Home Office Expenses
- Portion of rent or mortgage interest
- Portion of electricity and other utilities
- Internet and phone bills
- Office furniture and equipment
Vehicle and Travel Expenses
- Fuel and maintenance
- Vehicle insurance and registration
- Parking and toll costs
- Business-related travel between sites
- Depreciation on work vehicles
Equipment and Office Supplies
- Computers and accessories
- Printers and scanners
- Desks, chairs, and shelving
- Stationery and general office supplies
Employee Wages and Superannuation
- Wages and salaries
- Overtime and bonuses
- Superannuation contributions
- Payments to contractors
Marketing and Advertising Costs
- Website development and hosting
- Social media advertising
- Printed materials (flyers, business cards)
- Email marketing and SEO services
Software Subscriptions
- MYOB, Xero, QuickBooks
- Adobe, Canva, or design tools
- CRM or industry-specific software
Training and Development
- Business-related training courses
- Certifications and licences
- Educational materials and subscriptions
Insurance Premiums
- Public liability insurance
- Professional indemnity insurance
- Income protection insurance
Phone and Internet
- Business mobile phone plans
- Internet services for business use
- Landline and VOIP services
Accounting and Legal Fees
- Bookkeeping services
- Tax agent and BAS lodgement fees
- Legal advice for business operations
Industry-Specific Tax Deductions
Trades and Construction
- Tools and equipment
- Safety gear and uniforms
- Union and industry association fees
- Travel between job sites
- Vehicle expenses for transporting tools
Retail and eCommerce
- Inventory and stock purchases
- Shipping and delivery costs
- Website hosting and domain fees
- Online marketplace fees (e.g. Etsy, Shopify)
- Store fit-outs, displays, and signge
Professional Services
- Memberships and professional associations
- Industry-specific software and tools
- Ongoing education and CPD courses
- Office rent and utility bills
- Legal and accounting services
Please note that this is general advice only. For expert advice specific to your business, get in touch with us at Darcy Bookkeeping and Business Services or call us on 1300 728 875.
How to Claim Tax Deductions
To claim tax deductions for small businesses, you need accurate, up-to-date records. The ATO requires receipts, invoices, bank statements, and other proof that the expense was directly related to business operations. Logbooks are required for tracking vehicle use. Keep your financial documents for at least five years and consider using bookkeeping software like MYOB or Xero to help track and store everything properly.
You can lodge your return through myGov, a registered tax agent, or an accountant. No matter how you lodge, ensure all business expense write-offs are supported by evidence and align with ATO tax deductions rules.
Common Tax Deduction Mistakes to Avoid
One of the most common mistakes small business owners make is over-claiming personal expenses. If an item is used for both business and personal purposes, only the business portion is deductible. Claiming the full amount can lead to penalties from the ATO.
Here are some more common mistakes to avoid:
- Poor record-keeping, such as missing receipts, invoices, or bank statements, may result in the ATO denying claims during an audit.
- Businesses registered for GST sometimes mistakenly claim deductions based on GST-inclusive amounts. In these cases, only the GST-exclusive amount should be claimed.
- Forgetting to claim smaller expenses like software subscriptions, industry memberships, or insurance premiums, which can add up significantly over the year.
- Not updating your vehicle logbook is another error that can impact your ability to claim motor vehicle expenses. The ATO requires an up-to-date and accurate logbook to support any car-related claims.
- Failing to lodge your tax return on time can result in missed deductions or ATO penalties.
5 Expert Tips for Maximising Deductions
- Regularly review your expenses throughout the year. Don’t wait until tax time—keeping track of deductible expenses monthly makes it easier to spot opportunities and ensures nothing is missed.
- Make it a habit to store all receipts, invoices, and financial records digitally. Using bookkeeping software like MYOB or Xero can help categorise expenses correctly and flag potential deductions you may not have considered.
- Stay informed about current ATO rules and tax updates. Deduction rules can change from year to year
- If you use assets for both business and personal purposes, such as a vehicle or home internet, keep clear records of how often it’s used for work. Accurate apportioning can make a significant difference when claiming partial deductions.
- Seek expert advice when needed. A registered tax professional can help you identify all eligible deductions based on your specific business circumstances. They understand current ATO regulations and can guide you through complex areas and ensure your tax return is accurate, compliant, and optimised to reduce your taxable income as much as legally possible.
Frequently Asked Questions
What can I claim on tax for a small business?
Small businesses can claim expenses related to earning income, such as rent, utilities, equipment, marketing, and employee wages.
What is the $20,000 instant asset write-off?
The $20,000 instant asset write-off allows eligible small businesses to immediately deduct the full cost of assets under $20,000 in the year they’re first used or installed. This applies to items like tools, equipment, or technology used for business purposes. To qualify, your business must have an aggregated turnover of less than $10 million.
What is the most overlooked tax deduction?
Many businesses forget to claim depreciation on assets, home office expenses, and small business tax offsets. Keeping detailed records ensures all eligible deductions are claimed.
Understanding and claiming the right tax deductions can make a significant difference to your small business’s bottom line. From everyday operating expenses to industry-specific write-offs, staying on top of your obligations and opportunities is essential. Good record-keeping, regular reviews, and staying up to date with ATO guidelines are all part of the process.
If you’re unsure about what you can claim or want to make sure you’re maximising your deductions, contact us today at Darcy Bookkeeping and Business Services or call us on 1300 728 875.
