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What can be deducted in a business?

As the financial year ends, our accountants have prepared an updated guide on a few items that will assist in minimising the stresses of preparing your taxes. The guide includes some of the latest announcements by the Government. As you may appreciate, there are many more rules and many other deductions that may apply, however, we have noted a few to help you assess the items to see whether they are suitable for you.

What can be deducted in a business?

Business and sole trader deductions differ from deductions allowed as an employee. Employees are allowed deductions that directly relate to them earning the income, whereas the deductions for businesses are a bit broader where deductions can be claimed for expenses that also relate to running your business. Consider what you may have purchased to help you run your business. Stationary? Diary? Protective Equipment? Magazine, Journals and Subscriptions? Examples of some common deductions are below

Home Office Expenses

  • If you run your business from home, you can claim a portion of both your running costs and occupancy costs
  • You would generally need a dedicated work area such as a home office.
  • Running costs would need to be split for work use and home use, recommended to be on floor space. Running costs can include
    • Electricity and gas for cooling, heating and lighting
    • Decline in value of home office furniture
    • Phone expenses
    • Internet expenses
  • Shortcut method – Due to the Covid situation, the ATO has allowed a shortcut method where you can claim a deduction of 80 cents for each hour you work from home from 1 March to 30 June 2020. A diary documenting your hours worked from home is recommended.
  • Fixed rate method – You may be able to claim a deduction of 52 cents for each hour you work from home for the work related expenses you incur for additional running expenses.
    • To claim this method, you must keep records of either
      • Your actual hours spent working at home for the year
      • A diary for a representative four week period to show your usual pattern of working at home

Car expenses

  • You may be able to claim the costs of your car, however, it would need to be apportioned between business and private use.
  • Travelling between your home and your place of business is generally considered private use unless you are a home based business and your trip was for business purposes.
  • You can use either the cents per km method or the logbook method.
    • The cents per km method is 68 cents per km, for a maximum of 5000 kms
    • The logbook method takes into account the business percentage of your trips, and applies that against car expenses, which also includes depreciation (deductions for the purchase of the car) and any interest on any car loans. A log book would need to be kept for 12 weeks and can be used for 5 years.

Phone expenses

  • If you use your own phone or internet for work purposes, you may be able to claim a deduction if all of the following conditions apply:
    • You spent the money yourself
    • The expense is directly relating to earning your income
    • You must have a record to prove it
  • It is advised to work out your percentage of work use over a four-week representative period, which you can then apply to the full year.

Asset Write off

  • Under the instant asset write-off, eligible businesses can claim an immediate deduction for the business portion of the cost of an asset in the year the asset is first used, or installed ready for use.
    • Assets can include New and second hand assets, including cars and electronic devices
  • Due to Covid, from 12 March 2020 until 31 December 2020 the instant asset write-off:
    • Threshold amount for each asset is $150,000 (Up from $30,000)

Covid Stimulus support – Early access to Super

  • Eligible Australian and New Zealand citizens and permanent residents are able to apply to access up to:
    • $10,000 of their super until 30 June 2020
    • A further $10,000 from 1 July 2020 until 24 September 2020
  • To apply for early release of superannuation as a citizen or permanent residents, you must satisfy one or more of the following requirements
    • You are unemployed
    • On or after 1 January 2020 either:
      • You were made redundant
      • Your working hours were reduced by 20 or more
      • If you were a sole trader, your business was suspended or there was a reduction in your sales turnover of 20% or more

Covid Stimulus Support – Jobkeeper

  • Soletraders are eligible for jobkeeper as eligible business participant
  • If you are eligible, you can claim one $1500 jobKeeper payment per fortnight for yourself as the eligible business participant
  • If you have employees, you may also be able to claim JobKeeper payments of $1500 per fortnight for each eligible employee
  • To claim the JobKeeper payment, an entity must satisfy certain eligibility requirements
    • On 1 March 2020, you carried on a business in Australia
    • You satisfy the fall in turnover test for the relevant period of 30% compared to the same month last year. Additional tests also apply for new businesses as well as growing businesses.
    • The income test relates to all income earned under the one ABN, even if they are from different business activities.

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