Claiming business expenses against your income is a great way to save you money by lowering your tax bill.
The number one rule about claiming business deductions is that the expense must be incurred in deriving or earning business income. That’s why there isn’t a definitive list of claimable business expenses because there must be a connection or relationship between the expense being claimed and the income being derived/earned. If there is no connection or relationship then no deduction is permitted.
Examples of claiming business expenses
- An electrician purchases a ladder in order to access the roofs of houses for wiring. The cost of the ladder is directly relatable to earning income and therefore can be claimed.
- However, if the electrician purchased a ladder to trim trees around his home then it has no connection to his earning income, and the expense would not be claimable.
- A business owner takes one of his valuable customers out to dinner to discuss supplying additional products. The cost of the lunch is connected to earning income and is claimable.
- Conversely, if a business owner takes a friend who also happens to be a customer out for dinner but it is a social catch up rather than to discuss business then there is no connection to earning income and the cost of the dinner will not be claimable.
- If a business owner takes a prospective customer out for a meal or drinks with the aim of signing them up as a client in the future then the meal/drinks can be claimed because there is a connection between the business and the entertainment expense incurred.
Claimable Expenses: Motor Vehicles
If a vehicle is used for business you can claim a deduction for tax purposes. Typical motor vehicle expenses could be:
- Fuel
- Registration
- Insurance
- Repairs and maintenance
- Depreciation
If a vehicle is dedicated solely for business (i.e. no private usage) then 100% of the costs incurred will be deductible for tax purposes.
If a vehicle is used for both business and private usage then an apportionment needs to be made between the business travel, which is deductible for tax purposes, and private expenditure which is not tax deductible.
Unless the home is a place of business, travel expenses cannot be claimed travelling from home to a job. If the home is a place of business then travel from home to a job can be claimed.
Claimable Expenses: Gifts
Gifts to suppliers and customers are 100% deductible for tax purposes. For example if you gift a bottle of wine or tickets to an event to a customer to thank them for their loyalty then the expense will be deductible.
Please contact us if you have questions regarding claimable expenses relating to your business.