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Starting and running your small business
Australia's income tax system works on the self-assessment principle. This means we initially accept that the information you provide about your income and deductions is accurate and work out the tax you are liable to pay on this basis. However, we may ask you to show records to support your information, so it is important to keep the necessary records to verify your claims.
You must lodge a tax return for any year in which you carry on a business. We work out your individual or business income tax based on your taxable income using the following formula:
taxable income (the amount you pay tax on)
Claiming business deductions
You can claim deductions for costs incurred in running your business, provided the expenses are not of a private or domestic nature. You can claim most expenses you incur in running your business as deductions to reduce your assessable income. As a general rule, you can claim your day-to-day business operating expenses in full in the year you incur them, while capital items - such as buying plant and equipment - are claimed over a number of years.
Most money you receive in carrying on your business is assessable income. There are some exceptions, such as: loans you receive, money you contribute as the business owner and GST you collect.
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