As tax time fast approaches, make sure you understand the small business tax deductions rules for asset write-offs, so you can maximise your tax refund and underpin your future business success. Find out how your business might benefit.
Top Tax Deduction Tips for Small Businesses
- Practise good record keeping: The myDeductions tool, available in the ATO app, makes it easy for sole traders to organise and keep records in one place.
- Prepay expenses: There are special rules about the timing of deductions. But for payments covering no more than 12 months, an immediate deduction is generally available. This may include prepayments for insurance premiums, phone and internet services, subscriptions to trade or professional bodies, and rent on your business premises.
- Write-off bad debts: While no business wants to be in a position where they can’t recover a debt, it does happen. If your business has to write-off a debt, a tax deduction may be available for the amount of the debt written off.
- Pay superannuation: Ensure all June quarter superannuation contributions are paid by 30 June to accelerate your tax deduction. To meet this requirement, the contributions must be paid, cleared in the business bank account and received by the employee’s super fund before 30 June.
Get the right trading stock valuation: Damaged and obsolete stock can be written down or written off entirely.
Special Rules for Businesses Using Simplified Depreciation
If your business has an aggregated turnover of less than $10 million, you can choose to calculate deductions for depreciating assets using the simplified depreciation rules.
Under these rules, depreciating assets that cost less than the instant asset write-off limit for the year can be written off immediately. Other assets are pooled in the general small business pool, which has simplified calculations to work out the depreciation deduction.
The $20,000 instant asset write-off for the 2024-25 income year is now law. Businesses with a turnover under $10 million can deduct the full cost of eligible assets that cost less than $20,000 for the 2024-25 income year. The $20,000 limit will apply on a per asset basis, so small businesses can instantly deduct the full cost of multiple assets, as long as the cost of each asset is less than the limit.
Find out more about simplified depreciation rules.
SEE ALSO: 10 Tax Deductions You Could Be Claiming
Concessions
Eligible small businesses can access a number of concessions to help reduce the amount of tax they pay. Eligibility depends on different factors such as business structure, industry and annual turnover, so it is important to check eligibility each year before applying a concession.
Find out more about concessions.
Baseline Expenses
Businesses can claim a tax deduction for most expenses they’ve incurred from carrying on their business, including motor vehicle expenses, travel expenses, workers’ wages and superannuation contributions, and other expenses.
Find out about what you can and can’t claim, different types of expenses and more on the ATO website.
Hot Tip: Keep good records – tax law requires you keep records for at least five years. Good record keeping also facilitates efficient business management and will help you substantiate your claims.
Home-Based Business Expenses
If you operate some or all of your business from home, you may be able to claim deductions for the business portion of expenses, including occupancy expenses (such as mortgage interest or rent) and running expenses (such as the usage of electricity and the decline in value of plant and equipment).
You can only claim occupancy expenses if the area of your home set aside for your business has the character of a ‘place of business’. You may have to pay tax on any capital gains you make when you sell your home.
The actual cost method, fixed rate method and floor area method are three ways to work out running expenses.
The fixed rate allows you to claim a set rate for each hour you work from home during the year. It covers the total of running expenses for usage of electricity, gas, internet, mobile and home telephone, as well as incidentals such as stationery and computer consumables, for the income year. If you choose to use the fixed rate method, you need to keep a record of all hours worked from home for the entire income year (such as timesheets, rosters or a diary).
Trusts and companies should have a genuine, market-rates rental contract with the owner of the property.
Find out more about home-based business expenses, including how you can calculate occupancy and running expenses and the records you need to keep.
SEE ALSO: Useful Online Tools From the ATO
This is general information only. Seek professional financial and/or legal advice to determine the right outcomes for your business or individual needs.
This article was originally published in 2021 and has been updated.
