Tax deductions and write-offs for your small business

Preparing your business for tax time? Here are some potential tax deductions to keep in mind when preparing to submit your tax return.

1. Support for small businesses 

Instant asset write-off and energy incentive (1 July 2023 to 30 June 2024) 

In the 2023-24 Federal Budget the Government announced that it will allow:

• Small businesses (with aggregated turnover of less than $10 million) to immediately deduct the full cost of eligible assets costing less than $20,000. The instant asset write-off can be used for multiple assets, as long as the cost of each individual asset is less than the $20,000 threshold. The measure will apply to eligible assets that are first used or installed ready for use between 1 July 2023 and 30 June 2024.
• Small businesses (with annual turnover of less than $50 million) to deduct an additional 20% on spending that supports electrification and more efficient use of energy, such as electrifying heating and cooling systems, upgrading to more efficient fridges and induction cooktops, and installing batteries and heat pumps. Up to $100,000 of total expenditure will be eligible for the incentive, with the maximum bonus tax deduction being $20,000 per business. The incentive will apply to eligible assets or upgrades that are first used or installed ready for use between 1 July 2023 and 30 June 2024.

It's important to consider that the announcements are not yet law and you should ensure that they are enacted as expected before making a decision based on the announcement.

If your business meets the eligibility tests, you may be able to claim asset purchases or the cost of upgrades in your tax return for 2024. This is provided the assets or upgrades are first used or installed and ready for use between 1 July 2023 and 30 June 2024.

There may be time to make purchases for your business and claim the eligible amount against the income you earn in the income year ending 30 June 2024. Not every purchase or expenditure may qualify, and the rules are complex, so you’ll need to seek your own independent taxation advice before buying the asset or paying for any energy efficient upgrades.

2. Claiming depreciation of business assets

When businesses buy fixed assets, tax deductions are generally not available immediately (except in special conditions like the instant asset write-off – see above). Rather, the cost of the asset is claimed over time, reflecting its decline in value. This is commonly referred to as tax depreciation. Tax depreciation is complex and different rules can apply, depending on the type of asset and its use. In addition, certain small business entities may also elect to use the simplified depreciation rules to work out their tax depreciation claim.

For more information, please seek advice from a suitably qualified tax advisor. Information is also available on the ATO website.

3. Prepaid expenses

Running your own business can be expensive, but you may be able to claim some running expenses as tax deductions – including ones you pay for ahead of time. 

Prepaying some expenses before 30 June can increase your allowable deductions for the financial year in which they are paid. Eligible expenses include those that have a service period of 12 months or less, for example, annual policies, utility bills or professional subscriptions. Keep in mind that if you claim them this year, you won’t be able to claim them next year meaning you may have more tax to pay next year.

For more information, visit the ATO website.

4. Business account and loan expenses

You should also consider whether you can claim the fees and interest from your business accounts and loans around tax time.

5. Deductions for personal super contributions

From 1 July 2022, if you’re between 67 and 75¹ you may be able to make personal contributions without meeting the work test, subject to existing contribution caps. However, if you want to claim a deduction for that personal contribution, the work test or the work test exemption criteria may apply. The work test means you need to be employed for at least 40 hours over 30 consecutive days during the financial year. The work test exemption generally means your total superannuation balance (just prior to the financial year of contribution) must be less than $300,000 and you satisfied the work test in the financial year before the year you made the contribution. Once you have used the work test exemption for a financial year, it cannot be used again in the future.

When claiming a personal superannuation deduction for the financial year, it’s important to remember that the combined total of your superannuation guarantee payments, salary sacrificed amounts and your personal tax-deductible contributions does not exceed $27,500 in a financial year or extra tax will apply.

To make a personal tax-deductible contribution, you need to submit a valid ‘Notice of intent to claim or vary a deduction for personal super contributions’ form to your super fund within the prescribed time limits, and receive an acknowledgment for a valid notice from the fund in writing. If you intend to claim a tax deduction for personal contributions, refer to the ATO website.

6. Other deductions

If you have you been recently working at home, you may be entitled to claim tax deductions for expenses related to generating your income. There are a number of criteria to consider before claiming an amount in your tax return, for instance, you should consider whether you can claim the revised fixed rate method of 67 cents per hour from 1 July 2022.  You should consult the ATO website about the rules for making a claim, in particular, the eligibility criteria which includes the records required to substantiate the hours you worked from home. Learn more about the method.

Other calculation methods may also be acceptable and more appropriate to your circumstances. You should consider which method is best for you and the criteria required to claim a deduction. Further information is available at the ATO website.

There are many other expenses you pay to keep your business running or help you earn business income, which may be tax deductible. You can find more information about claimable deductions on the ATO website or by speaking to an accountant or tax adviser.