You need to know
Salary, wages and other labour costs actually paid or payable to persons employed in your business (excluding those forming part of capital expenditure or paid for private or domestic assistance) are usually deductible. However, you can't be an employee of your own business. Salary or wage payments made to you aren't allowable deductions in calculating your income or loss; treat these payments as an allocation of profits.
Include any salary and wage component of Cost of sales, such as:
- allowances
- bonuses
- casual labour
- retainers and commissions paid to people who received a retainer
- workers compensation paid through payroll
- include any salary or wages paid to relatives and other related entities both here and at P16 – label H in your schedule.
Include also:
- direct and indirect labour
- holiday pay
- payments made to locums
- long service leave
- lump sum payments
- other employee benefits
- overtime
- payments under an incentive or profit-sharing scheme
- retiring allowances
- sick pay.
Exclude:
- agency fees
- contract payments
- sub-contract payments
- service fees
- super
- management fees
- consultant fees
- payments made from 1 July 2024 where you have not complied with the PAYG withholding and reporting obligations for those payments
- payments for workers compensation arising from damages.
For more information, see Removing tax deductibility of non-compliant payments.
Completing this question
Do you pay salary and wages as a business expense?
- No – Go to P16 Payments to associated persons.
- Yes – Read on.
Complete the following steps.
Step 1: Add up total salary and wage expenses from each business.
Step 2: Write the total at P15 Total salary and wage expenses – label G in your schedule. Don't show cents.
Step 3: Select the letter that matches the description of the expense component where the salary and wage expenses have been wholly or predominantly reported at P8 Business income and expenses from the list below:
- C – all included in the expense component Cost of sales
- A – all included in the expense component All other expenses
- B – included in the expense component of both Cost of sales and All other expenses
- O – included in expense components other than Cost of sales and All other expenses.
Step 4: Print the appropriate letter in the Type box at label G.
Continue to: Payments to associated persons – P16