Operating expenses
Operating expenses are the expenses you have paid for (incurred), or have to pay for (incur), in the everyday running of your business. Examples include office stationery, renting premises and purchase of trading stock. These expenses are sometimes called working or revenue expenses.
You can generally claim a tax deduction for most operating expenses associated with running your business in the same income year you incur them. Ensure you keep accurate and complete records of these expenses as they occur.
You can only claim the business portion of these expenses if they relate to both business and private use, for example mobile phone calls.
General business operating expenses
Operating expenses that are common in business include:
- purchases of trading stock, including delivery charges
- advertising and sponsorship
- public relations
- legal expenses, such as those incurred defending future earnings, borrowing money, discharging a mortgage or obtaining tax advice
- tender costs, even if the tender is unsuccessful
- bad debts
- bank fees and charges
- annual fees charged by statutory bodies (for example, ASIC)
- penalties and fines imposed by statutory bodies as a result of breaches of an Australian law are not deductible (for example, late payment fees are usually penalties)
- insurance premiums, including accident or disability, fire, burglary, professional indemnity, public risk, motor vehicle, loss of profits insurance, or workers compensation
- interest on money borrowed for
- producing assessable income or purchasing income-producing assets
- income tax obligations, employer super contributions, or late payment or lodgment of tax
- lease expenses
- stationery
- small-value mobile phone and tablet accessories
- for example, protective covers and earphones
- costs for running a commercial website
- for example, site maintenance and content updates
- internet service provider fees
- subscription fees for off-the-shelf software
- transport and freight
- waste removal and recycling
- parking fees (but not parking fines)
- small-value items costing $100 or less.
Other expenses (similar to those claimed by employees)
As a business owner, you are also able to claim deductions for some business expenses that are the same as those that can be claimed as a deduction by employees, including:
- union dues and subscription fees to trade, business or professional associations
- clothing expenses (corporate wardrobes or uniforms and occupation-specific and protective clothing)
- expenses relating to education and technical or professional qualification
- subscription costs for business or professional journals, information services, newspapers and magazines
- costs for sunglasses, sunhats and sunscreen when your business activities require outdoor work
- other items that protect you or your employees from a health or injury risk in your work environment
- gifts and donations to organisations that have a deductible gift recipient (DGR) status.
Operating expenses from employing people
Expenses associated with employing people including:
- salary, wages and super
- fringe benefits, including the cost of any fringe benefit provided and the associated fringe benefits tax
- protective clothing required for employees to carry out work activities
- allowances and reimbursements paid to employees who use their own mobile device for work purposes
- travel expenses for relocating employees
- losses due to misappropriation of money by an employee or agent, for example, fraud, theft or embezzlement.
Business premises operating expenses
Business premises operating expenses include:
- electricity
- landline phone calls and line rental
- mobile phone calls (prepaid or as part of a plan)
- internet service fees
- data plans
- cloud storage
- water
- renting or leasing business premises
- rates
- land tax.
If you incur expenses associated with setting up and using myGovID to access our online services in the course of running your business, such as phone and internet expenses, you may be able to claim tax deductions for the business portion of those expenses.
Tax-related operating expenses
Tax-related expenses include:
- registered tax agent and accountant fees
- tax-related expenses, such as
- having a bookkeeper prepare your business records
- preparing and lodging tax returns and activity statements
- objecting to or appealing against your assessment
- attending an ATO audit
- obtaining tax advice about your business
- credit card/charge card payment fee associated with paying a business tax liability, for example, GST liability.
Remember you need to keep records to substantiate your claims.
Operating expenses for the everyday running of businesses are generally deductible in the year you pay for them.