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  • Deductions

    You can claim a deduction for most expenses you incur in running your business as long as they are directly related to earning your assessable income.

    Remember the three golden rules for claiming your business expenses:

    • The money must have been spent for your business (not a private expense).
    • If it is for a mix of business and private use, only claim the portion that is related to your business.
    • You must have records to prove it.

    For example, you can claim a deduction for a laptop if you bought it for your business – just claim for the proportion of business use (not private use) and keep your receipt.

    You claim business deductions in the tax return for your business entity or, if you’re a sole trader, in your personal tax return.

    On this page:

    When you 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 of time.

    For operating expenses, you generally incur the expense when you have a current 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 may need to restrict your claim to the period it was used for the business.

    What you can't claim

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

    • entertainment expenses and 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 personal services income your deductions may be limited.

    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.

    You will usually need to apportion the expense across the whole supply or service period where the expense is $1,000 or more if you:

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

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    Last modified: 08 May 2018QC 33725