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  • Business tax deductions

    You can claim a tax deduction for most expenses from carrying on your business, as long as they are directly related to earning your assessable income.

    See our definitions for explanations of tax and super terms that you don't understand.

    On this page:

    What you can claim

    There are three golden rules for what we accept as a valid business deduction:

    1. The expense must have been for your business, not for private use.
    2. If the expense is for a mix of business and private use, you can only claim the portion that is used for your business.
    3. You must have records to prove it.

    For example, if you buy a laptop and you only use it for your business, you can claim a deduction for the full purchase price. However, if you use the laptop 50% of the time for your business and 50% of the time for private use, you can only claim 50% of the amount as a deduction.

    You can't claim the GST component of a purchase as a deduction if you can claim it as a GST credit on your business activity statement.

    If you’re in an industry that requires physical contact with customers, such as healthcare, retail or hospitality, you can claim deductions for expenses related to COVID-19 safety. This includes hand sanitiser, sneeze or cough guards, other personal protective equipment and cleaning supplies.

    See also:

    What you can't claim

    There are some expenses that are not deductible, such as:

    • entertainment expenses
    • traffic fines
    • private or domestic expenses, such as childcare fees or clothes for your family
    • expenses relating to earning income that is not assessable, such as money you earn from a hobby
    • the GST component of a purchase if you can claim it as a GST credit on your business activity statement.

    Remember, if you earn PSI your deductions may be limited.

    When you can claim your deduction

    The type of expense – operating expense or capital expense – determines when you can claim your deduction. Generally, you can claim:

    • operating expenses (such as office stationery and wages) in the year you incur them
    • capital expenses (such as machinery and equipment) over a longer period.

    For operating expenses, you generally incur the expense when you have a legal obligation to pay for the goods or services. An invoice is not necessary for an expense to have been incurred, but you do need a record of the expense.

    If you use an item in your business for only part of a year, you generally need to restrict your claim to the period it was used for the business.

    See also:

    Claiming a deduction for a prepaid expense

    There are different rules for expenses you pay in advance – that is, expenses you incur now for goods or services you will receive (in whole or in part) in a later income year.

    Where the expense is $1,000 or more, you will usually need to apportion (or distribute) the expense across the whole supply or service period if you:

    • won't receive the goods or services in full within 12 months
    • are not eligible for an immediate deduction.

    See also:

    How to claim your tax deduction

    How to claim your business deductions depends on your business type:

    • Sole trader – claim the deductions in your individual tax return in the 'Business and professional items' schedule, using myTax or a registered tax agent.
    • Partnership – claim the deductions in your partnership tax return.
    • Trust – claim the deductions in your trust tax return.
    • Company – claim the deductions in your company tax return.

    Types of expenses

    Learn more about the different categories of expenses:

    See also:

    Last modified: 20 Jul 2021QC 33725