Running a business is indeed adventurous, but it also needs a planned structure too. It involves a number of costs you have to bear like staff wages, Expats taxes, travel expenses, marketing costs, business finance costs etc. However, the good thing is that, you can always claim deduction for these costs which sounds quite relieving for all the businessmen like you out there. Well, you cannot claim everything. This cannot be obviously possible. There are certain rules and regulations which you have to comply with. One of the most important points to keep in mind is that, you cannot claim private expenses.
How does tax deduction actually work?
Before claiming for a tax deduction, it is necessary for you to know how it actually works. In Australia, while doing a tax return, you are allowed to claim most of your business expenses as tax deductions to decrease your taxable income. The Australian Taxation Office or ATO uses a basic formula for determining taxable income. Taxable income is calculated by deducting tax from assessable income. This assessable income is what you get the most from running your business i.e. the income which is subject to tax.
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What points you should keep in mind while filing for a tax deduction?
As you can claim most of the expenses used in running your business, there are certain points you should keep in mind while filing for deductions.
- These expenses should be directly related to your income
- These should have been for your business activities, and not for your private purpose.
- It may occur that the expense was used for both business as well as private purposes. In that case, the portion which was exclusively used for business deals can only be claimed for deduction.
- You should have substantial records for your claim.
What expenses you may claim deductions for your small business?
The Australian government provides a wide range of tax relaxations in case of small businesses like recently introduced additional tax relief for businesses that are just starting, which had decreased a huge tax burden for small business owners. For this reason, a number of people are coming forward to open small businesses. If you want to start a small business, according to the new tax relief scheme, you will get some immediate deductions from a number of costs including accounting and legal expenses and other government taxes and charges. For more information on tax-related queries in Perth, you can consult with a tax accountant Perth. The expenses that you can claim deductions for your business are as follows:
Business travel expenses:
It is common for a business owner or an employee to travel to areas within or outside the country. It is always recommended to maintain a travel diary while going for a business tour as it will document records of the expenses that are spent on the whole tour. This is especially applicable for sole traders and partnership business persons. The business expense deduction is not dependable on the duration of your stay. You can get tax deductions on travels taken for many nights as well as travels which complete in a single day.
Expenses generally include airfares, ride fares (like train, tram, bus or taxi, whichever is applicable), car hiring fares and the costs that were taken using a hire car like fuel, car parking and toll taxes and accommodation fares. You can also get meal fares, if you stay overnight. However, to get tax deduction on expenses taken at an overnight stay, you must have a permanent home elsewhere and you are required to stay away from that home overnight for your business job.
If your employees travel for business purposes, there are three ways you can pay for their expenses. You can pay directly from the business account, you can pay your employee a travel allowance or you may reimburse the employee for the expenses. Payment of travel allowance and reimbursement can get you Fringe Benefits Tax (FBT) liabilities.
Motor vehicle expenses:
Those cars will be treated as motor vehicles which can carry load less than one tone and a number of passengers less than nine. Other vehicles include motorcycles and utility truck or panel van which can carry more than one tonnage of load as well as minivan which can carry more than nine passengers.
Various motor vehicle expenses are fuel and oil prices, repairs and servicing charges, interest rates on a motor vehicle loan, registration fees, lease payments and insurance premiums. You may use the motor vehicle for both private as well as business purposes, but for that, you have to keep in mind that, you must be able to differentiate the two types and identify and justify the amount you used for business purposes.
Expenses for home-based business:
If you operate your business from your home, then you can also claim for tax deductions in a number of categories. You can claim occupancy expenses which include rent, mortgage interests, land taxes, house insurance premiums and council rates. For a home-based business, you must have to bear some running expenses like electricity, phone, necessary equipments, repairing of furniture and cleaning purposes. You can happily claim for these expenses too. If you have to go to other places from your home-office for business purposes using motor vehicles, you can claim for the motor vehicle expenses.
When you can claim for the expenses?
There are two types of expenses. One is, operating expenses which include office stationary charges and wages and another is capital expenses which include charges on machinery and equipment. For operating expenses, you may claim the deduction in the year you incur them but for capital expenses, you can claim those over a longer period.
Ending note
For different business structures (like partnerships, trusts or companies), modes of tax deduction claim are also different. For more information, you can search on the internet. Or if you’re not very used to using internet and want to know in details regarding that in Perth, you may discuss with a financial advisor Perth.