How to maximise your small business tax deductions

As a small business owner, managing your tax deductions is crucial to ensuring that you pay only what you owe—and no more. Understanding which expenses are tax-deductible can help boost your savings, reduce your taxable income, and ultimately improve your bottom line. So, what can and can't you claim? Read as we answer this crucial question and provide you with tips for keeping track of your business expenses.

Key rules for claiming small business deductions

In order for an item to be tax-deductible, three golden rules must be met:

1. The expense must have been for your business, not for personal use.
2. If the expense is for both business and personal purposes, you can only claim the portion used for business.
3. You must have records to support your claim.

Small business tax-deductible items

While understanding the rules above is important, it’s even more useful to have specific examples of deductible expenses. Here's a breakdown of common categories:

1. Day-to-day operating expenses

These are your core “running costs” involved in keeping the business operating smoothly on a day-to-day basis. They're usually fully deductible in the year they’re incurred, but make sure you keep clear records to support your claims—things like invoices, receipts, and contracts.

Examples include:

• Rent or lease payments for your business premises
• Utility bills
• Office supplies
• Software and subscriptions
• Phone and internet services used for business purposes

What you can't claim: Expenses not related to your business, like your personal rent or mortgage, non-business phone or internet use, or personal groceries and entertainment.

2. Employee-related expenses

Unless you're a sole trader, you'll have costs associated with paying and supporting your employees, which are typically tax-deductible.

These may include [3]:

• Salaries and wages (including bonuses and commissions)
• Super contributions
• Employee benefits, such as health insurance premiums
• Fringe Benefits Tax (FBT) paid on non-cash benefits

What you can't claim: Payments to contractors or freelancers as employee expenses (they need to be reported separately), personal expenses like gifts not tied to the business, or penalties and fines paid on behalf of your employees.

3. Business travel expenses

You can claim travel expenses related to your business, whether you travel for a day, overnight, or for several nights [4]. If you're a sole trader or are in a partnership, you need to keep a travel diary where you record overnight business travel expenses. Otherwise, a travel diary isn't compulsory, but highly recommended.

Travel expenses you can claim include:

• Taxis or rental cars
• Mileage, tolls, and car parking you incur while using your personal car for business purposes
• Airfare and hotels for business trips
• Meals, if you're away overnight

To claim overnight travel expenses, you need to have a permanent home in another location, and your business activities must require you to stay away from that home overnight.

What you can't claim: Leisure travel costs, expenses for family or friends who come along, or the portion of any trip that isn't work-related.

4. Depreciation and capital allowances

If a depreciating asset is used to generate your assessable income—for example, a laptop, furniture, or vehicles—you can typically claim deductions for its decline in value over time.

Depreciation rules apply. As a small business, if you have an aggregated turnover of less than $10 million from 1 July 2016 onwards or $2 million for prior income years, you can use the simplified version, which includes [1]:

• Instant asset write-off. You can claim immediate deductions on the full cost of eligible depreciating assets in the year you first use or install them. A $20,000 threshold applies on a per-asset basis, allowing you to benefit from instantly writing off multiple assets [2].
• General small business pool. If an asset costs more than the IAWO limit, you can use the general small business pool to work out its depreciation. This means you group eligible assets into a pool and depreciate the pool at a fixed percentage.

Can I deduct expenses for my home office?

If you run all or part of your business from home, you may be eligible to claim tax deductions for the portion of expenses related to your work—such as internet, your home phone, utilities, and occupancy expenses (although some restrictions apply) [6]. What you can't claim, though, are personal expenses that aren’t connected to running your business—like snacks or home repairs that have nothing to do with your home office.

How to keep track of business expenses

There are different ways of keeping records of your business expenses, each with its pros and cons. Some commonly used methods include:

• Manual record-keeping: Keeping paper receipts and logging expenses by hand in a notebook or ledger—a simple method that can become time-consuming and hard to manage as your business grows.
• Spreadsheets: Using Excel or Google Sheets to record and categorise expenses—more organised, but still requires you to make regular manual updates.
• Accounting software: Digital systems that automate much of the process by syncing with your bank accounts and categorising expenses automatically—these help you stay organised with minimal manual effort.
• Expense tracking apps: Mobile or desktop apps that let you scan receipts, track mileage, and manage expenses digitally—convenient because you can access them from your phone and take care of your finances even if you're constantly travelling.
• Dedicated business bank accounts and cards: Having a separate account for business spending makes it much easier to track, whether you’re doing it manually or with software.

EOFY and tax season can be a great time to level up your business. If you want to do so without draining your cash flow, Valiant offers a wide range of asset financing solutions to suit your needs. Receive free, tailored quotes in less than two minutes.

Keen to learn more about how to prepare for tax season as a business owner? Download our EOFY guide for all our top tips.

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References

1. Simpler depreciation rules for small business | Australian Taxation Office
2. Instant asset write-off for eligible businesses | Australian Taxation Office
3. Deductions for salaries, wages and super contributions | Australian Taxation Office
4. Deductions for business travel expenses | Australian Taxation Office
5. Records you need to keep | Australian Taxation Office
6. Deductions for home-based business expenses | Australian Taxation Office