As tax time fast approaches, make sure you understand the small business tax deductions rules for asset write-offs, so you can maximise your tax refund and underpin your future business success. Find out how your business might benefit.
Top Tax Deduction Tips for Small Businesses
- Practise good record keeping: The myDeductions tool, available in the ATO app, makes it easy for sole traders to organise and keep your records in one place.
- Prepay expenses: There are special rules about the timing of deductions. But for payments covering no more than 12 months, an immediate deduction is generally available. This may include prepayments for insurance premiums, phone and internet services, subscriptions to trade or professional bodies, and rent on your business premises.
- Write-off bad debts: While no business wants to be in a position where they can’t recover a debt, it does happen. If your business has to write-off a debt, a tax deduction may be available for the amount of the debt written off.
- Pay superannuation: Super guarantee to employees is payable on the 28th day of the month following the end of the quarter. For the June quarter, all contributions are payable by 28 July.
- Get the right trading stock valuation: Damaged and obsolete stock can be written down or written off entirely.
Boosts for Small Businesses
If your business has recently invested in training for your employees, there are tax treatments that could provide a boost. Businesses with an aggregated annual turnover of less than $50 million could be eligible for the small business skills and training boost.
The small business skills and training boost allows eligible businesses an additional 20 per cent tax deduction for external training courses delivered to employees by registered training providers.
The boost measure became law on 23 June 2023 and applies to eligible expenditure incurred from 7.30pm on 29 March 2022.
The skills and training boost is open until 30 June 2024, so there is still time to make an investment in upskilling your employees, if you haven’t already.
Find out more about the small business skills and training boost.
Hot Tip: Keep good records – tax law requires you keep records for at least five years. Good record keeping also facilitates efficient business management and will help you substantiate your claims.
Special Rules for Businesses Using Simplified Depreciation
If your business has an aggregated turnover of less than $10 million, you can choose to calculate deductions for depreciating assets using the simplified depreciation rules.
Under these rules, depreciating assets worth less than $1000 can be written off immediately. Other assets are pooled in the general small business pool, which has simplified calculations to work out the depreciation deduction.
However, if your business stops using this method, you won’t be able to use it again until at least five years after the income year in which you stopped using the concession.
Find out more about simplified depreciation rules.
Concessions
Eligible small businesses can access a number of concessions to help reduce the amount of tax they pay. Eligibility depends on different factors such as business structure, industry and annual turnover, so it's important to check eligibility each year before applying the concession.
Find out more about concessions.
Baseline Expenses
Businesses can claim a tax deduction for most expenses they’ve incurred from carrying on their business, including motor vehicle expenses, travel expenses, workers’ wages and superannuation contributions, and other expenses.
Find out about what you can and can’t claim, different types of expenses and more on the ATO website.
SEE ALSO: 10 Tax Deductions You Could Be Claiming
Home-Based Business Expenses
If you operate some or all of your business from home, you may be able to claim deductions for the business portion of expenses, including occupancy expenses (such as mortgage interest or rent) and running expenses (such as the usage of electricity and the decline in value of plant and equipment).
You can only claim occupancy expenses if the area of your home set aside for your business has the character of a ‘place of business’. You may have to pay tax on any capital gains you make when you sell your home.
The actual cost method, fixed rate method and floor area method are three ways to work out running expenses.
For the 2023–24 income year, the fixed rate allows you to claim a set rate for each hour you work from home during the year. It covers the total of running expenses for usage of electricity, gas, internet, mobile and home telephone, as well as incidentals such as stationery and computer consumables, for the income year. If you choose to use the fixed rate method, you need to keep a record of all hours worked from home for the entire income year (such as timesheets, rosters or a diary).
Trusts and companies should have a genuine, market-rates rental contract with the owner of the property.
Find out more about home-based business expenses, including how you can calculate occupancy and running expenses and the records you need to keep.
Other Rule Changes to Note
The tax rate for most companies with an aggregate turnover of less than $50 million remains at 25 per cent for the 2023–24 income year. The tax offset for unincorporated small businesses with a turnover of less than $5 million is 16 per cent for the 2023–24 income year. This applies to sole traders or those who have a share of net small business income from a partnership or trust.
This is general information only. Seek professional financial and/or legal advice to determine the right outcomes for your business or individual needs.
This article was originally published in 2021 and has been updated.
