When you can claim a deduction
As a business owner, you can generally claim a tax deduction for:
- the salaries and wages you pay to employees
- super contributions you make on time to a complying super fund or retirement savings account for your employees and for certain contractors.
Salary and wage expenses are a type of operating expense (sometimes called working or revenue expense).
If you're a sole trader, you can usually claim a deduction for your own super contributions in your personal tax return.
If you're thinking of hiring, or have already hired, someone to work in your business, understand your tax and super obligations when engaging a worker.
Labour costs for constructing or creating tangible and intangible capital assets can’t be claimed as an immediate tax deduction. Capital asset labour costs are considered capital in nature and may be claimed as part of your depreciation or capital works expenses.
Salaries and wages
As the business owner, the deductions you can claim depend on the type of business you operate.
Generally, to claim a deduction for payments you make to your workers, you must first comply with the PAYG withholding and reporting obligations for each payment.
You can remove tax deductibility of non-compliant payments if you complied with PAYG withholding and reporting obligations.
If your income includes personal services income (PSI), the amount you can claim as a deduction for payments you make to an associate may be limited.
Sole traders
If you operate as a sole trader, you are the business owner and not an employee of your business. This means you can't pay yourself a salary or wage. Any nominal payment of a salary or wage to you is considered a distribution of profit.
Partnership business
If you operate your business as a partnership, you can't pay yourself salary or wages. This is because you are a partner, not an employee. Any nominal payment of a salary or wages to a partner is considered a distribution of profit.
Company or trust
If you operate your business as a company or trust, your company or trust can generally claim a deduction for any salaries and wages paid to you or other workers.
Contractors
If you engage a contractor to complete a service for your business, you may be able to claim the amount you pay them as a deduction.
Super contributions for your workers
You can claim a deduction for super contributions you make on time to a complying super fund or retirement savings account for your employees and for certain contractors.
To work out which contractors this applies to, use How to work it out – employee or contractor.
The amount you can claim may be limited if your income includes PSI.
As a business owner, we understand how busy you are managing and growing your business as well as meeting your employer obligations.
Remember to plan for your own future. Super can make a positive difference to your lifestyle in retirement.
You may be able to claim a deduction (in your personal tax return) for your personal super contributions. You may also be eligible for government super contributions such as the super co-contribution or low-income super tax offset.
Visit Super for employers to work out how much super you must pay your employees.
To find out more about super contributions see:
How business owners can claim a tax deduction for employee salaries, wages and super contributions.