What are my Business Expenses?

There are many ways to say it; Business Expenses, Tax Write-offs, Deductions and Tax Breaks - but fundamentally they all boil down to the same question: "Which Payment Card do I use to make this Purchase for my Business". These are your Business Expenses, and unfortunately there are no fixed, universal rules to live by.

Fortunately, you have landed on accountedfor.com.au who have Tax Specialists on call via our app and software platform (or at any time by calling 1300 201 329) to give you the answer at exactly the point in time at which you need it!

Seriously, if you have a business and are not sure what you can claim at tax time give us a try by calling or Joining accountedfor now! Joining is free and for the simple fee of $29/month we will answer all of your tax questions and file your whole tax return at the end of the year, for no extra charge!

If you do decide to call us, we will help you through from the very basics of how the Australian Tax System works, including how the Australian Tax Office may treat your business expenses, through to the most complex situations - and how the general rules and principles our system runs on, apply to your business.

Thankfully, however, there are some general rules which we will introduce below.

The General Rules of Business Expensing in Australia

While there are many many many different rules about general business expensing in Australia, they all tie back to one line in the Tax Act that the accountants at accountedfor live by, which is that a purchase is Tax Deductible if it is:

Necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income... [and not of a] private or domestic nature

Simple, right? Well it should be, but somehow we as a society still haven't figured it out perfectly - some people accidentally claim too many Tax Deductions, meaning the Tax Office has to ask them to re-cacluate their Deductions and pay back the right amount of tax and some people accidentally claim too few Tax Deductions and make it harder for their business to get ahead.

So, how do we at accountedfor fix this?

We work together with our business clients through the accountedfor Software Platform to inform and educate our business owners how the Tax System works right at the point they need it such as when a Business Purchase is made, or at Tax Time.

Let's start with an example of a some business expenses and why they're tax deductible.

Sally Shoemaker: An Exemplary Businesswoman

Sally runs a successful shoe making business that her clients on the Sunshine Coast rely on to fix their shoes from time to time, and who also sells designer shoes she makes herself.

Sally registered an Australian Business Number (ABN) through accountedfor and uses the accountedfor Software Platform to send her customers invoices to repair their shoes.

When Sally purchases nails, glue and leather to repair her customers shoes the nails, glue and leather are Tax Deductible because:

• Sally is carrying on a business
• Sally produces assessable income, and;
• The purchase of nails, glue and leather to repair the shoes of the shoe-wearing public are not private or domestic in nature

Once we have established these three facts about a purchase, we can be more certain that the Tax Office will agree that our business expense is Tax Deductible.

To make your business purchases Tax Deductible, you need to decide (or ask us to help you decide) if you are:

Carrying on a Business

There are certain things to consider about whether you are carrying on a business, in Sally's case she:

• Operates her business in the manner of a successful and organised business person, such as by diligently opening and attending her store every Monday to Friday
• Keeps systematic records of her sales and purchases by using the accountedfor Software Platform
• Using her valuable system, and her presence in the minds of her loyal customers, makes for herself a profit for hard work (or intends to, when times are tough!)

If that sounds like you, you may be carrying on a business - and hence entitled to claim a tax break from some of your purchases!

Producing Assessable Income

If you have registered a business, and started to trade with a view to profit, your next step will be to send our your first Live Invoice. This will record your "assessable income". Assessable income is any income that you make in carrying on your business. This is separate to any other income you may make, such as by being an employee.

Sally's assessable income is the money that her customers pay her on Invoice for shoe repairs, and the money she receives when she sells a pair of designer shoes that she makes.

Keeping track of your assessable income is key, as this will determine whether your expense is necessarily incurred for the purpose of producing your assessable income.

Nails, glue and leather are most definitely necessary to repair shoes, because the leather soles of Sally's customers are always worn right through. This requires her to remove and discard the old soles and nails, then glue and nail everything back together again, good as new - ready for pickup before the weekend!

To determine if your purchases are deductible, you need to make an assessment about whether the purchase is necessarily incurred in your business, and if so whether the purpose of the purchase is to help gain or produce tax assessable business income.

Not Private or Domestic in Nature

Sally doesn't always sell or repair shoes, and in her downtime she likes to drive to the beach - Sally doesn't claim the purchases she makes for ice cream and sunscreen as business purchases because they are for her private and domestic consumption, so she puts them on her personal Payment Card.

Similarly, to determine if your purchases are of a domestic or private nature, you need to look at the nature of your purchase and select your Business Payment Card or your Personal Payment Card appropriately. If you're ever in doubt, call an accountedfor Accountant on 1300 201 329!

Popular and Common Categories of Business Expenses

Now that we have been through an example, let's run through some common categories of business expenses and which businesses may take advantage of tax benefits. Remember - these categories are economy-wide and your particular situation and unique business needs might be different!

You might also be surprised to discover that certain categories of purchase are in fact tax deductible, so they're "on the business" which is great! However sometimes those expenses must be "apportioned" which means that you can't get a tax break for 100% of the cost - you may need to break the cost down into a private component that is not deductible and a business component that is.

Bank Fees

This is an easy one - no one likes Bank Fees, so we can happily deduct 100% of these when they are charged for the purposes of setting up a Business Loan, for example.

Staff Wages

If you have staff help you run your business, either as employees or contractors - the money you pay them can go to reducing your business income and ultimately reducing the amount of tax you pay on any profits your business may make.

Insurance

Some businesses require insurance, and some businesses get insurance policies because they are a good idea to protect their business or members of the public. If you run a shop front and have a Public Liability insurance policy, that cost is tax deductible.

Light, Power Heating

Similarly, if your shop front requires light and power to keep the air conditioner running - that cost is deductible. Even if you run your business from home, a certain amount (the percentage amount you use while you are home running your business for example, or via a shortcut method) is tax deductible as well.

Internet and Software Apps

Some, but not all internet costs and the cost of certain software apps are tax deductible. If you have a subscription to Netflix but you're a lawyer by trade, that is not deductible - but if you subscribe to receive a digital copy of your law books that will be tax deductible.

Marketing and Advertising

Similarly if you pay Google, Apple or Facebook to market your business website, or even if you place an ad in the local newspaper - all of these purchases are business write-offs which go towards reducing your overall tax payable at the end of the year.

Motor Vehicles and Running Costs

Some but not all expenses including buying and running your car can be considered business expenses. However, there are certain rules and evidences you must keep and be able to provide the Tax Office when claiming business usage of what would otherwise be seen as a private or domestic car. It's best to check with an accountant before claiming your car for business purposes.

Repairs and Maintenance

The Tax office recognises that life happens when you're running a business, too. Your headphones will break down right before an important meeting, the tap in the break room will suddenly spring a leak or the paint outside your premises will begin to peel. Most of the time, when these repairs are connected to the running of your business and the need to keep your business location in a presentable or usable state for your customers - the repairs and maintenance you carry out will be tax deductible.

Travel (National and International)

When you are lucky enough to be required to travel for your business, either nationally or internationally - the costs associated with this can be deductible and are usually apportioned. Check with an accountant before you claim, though!

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If you have any questions, Call Us or Join accountedfor now!

While we have run through the basics of Business Tax in Australia now, your business is unique and so are your deductions. We have accountedfor Accountants on standby ready to help you out, so feel free to give us a call on 1300 201 329 or just join accountedfor now and a member of our tax team will be in touch.

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