It can be tricky to know exactly what you can and can’t claim for your tax return each end of financial year – so we asked the experts at the Australian Taxation Office (ATO) for their best advice on some common queries. Whether you’re a small business owner, a sole trader or just want to know a few things about your individual tax return, ATO Assistant Commissioner and tax time spokesperson Rob Thomson has the answers for you.
What should I know about my tax return as a small business owner?
What are the key changes for this tax year that I need to know about?
First, if you’ve purchased a vehicle for your business in the 2023–24 financial year, the car limit has now increased to $68,108. The car limit is the cost you can use to work out the decline in value of passenger vehicles designed to carry a load of less than 1 tonne and fewer than nine passengers.
If you’re a sole-trader or in a partnership, you may be able to use the cents per kilometre method to work out your business-related car expenses. This rate has now increased to 85 cents per kilometre for the 2023–24 income year. If you use the cents-per-kilometre rate, remember, this includes all your vehicle’s running expenses, including registration, servicing, fuel and insurance.
Can I claim bulk bags of lollies if I serve them to clients during meetings?
You can claim a deduction for most business expenses you incur, as long as they're directly related to earning your income. When it comes to lollies for client meetings, you can claim them if they're provided to clients. The amount of your deduction will depend on whether any of the lollies you have purchased are for private consumption, like if you take a bag home with you, in which case you’d need to reduce your deduction.
SEE ALSO: Small Business Tax Deductions to Consider in 2024
I work from home. Can I claim all my internet usage?
When it comes to running expenses, like internet usage, you will need to work out the portion of the expense that relates to your business use. If you run your business from home, there are a few ways to work out your running expenses, but you need to ensure:
- it's reasonable to your circumstances
- you exclude the percentage of costs associated with your private living costs
- you have records to show how you calculated the expense
As for how you claim them, you can calculate your running expenses using the fixed rate method, floor area method or actual cost method – whichever works best for your situation. The fixed rate allows you to claim a set rate per hour and covers things like your home and mobile data expenses, phone usage and electricity. If you are using this method, you can’t claim a separate deduction for these expenses.
I want to update my business’ office decor. Are decor items a deductible expense?
If you have a home office, decorative items like flowers or art are generally not tax deductible because they don’t directly relate to the running of your business. If you have a dedicated space for your business, you may be able to claim a deduction for decor, as long as they’re used for commercial and business purposes. If you’re purchasing art for a dedicated office space, it’s important to note that it will often be classified as a capital expense and will need to be depreciated.
SEE ALSO: Useful Online Tools From the ATO
What baseline expenses can I claim from my business?
There’s no one-size-fits-all approach to claiming deductions for a business. As mentioned, you can claim a deduction for most expenses that directly relate to your business and earning your income. The types of business expenses you may be able to claim include your day-to-day operating expenses such as stationery or insurance, purchases of products or services for your business, and certain capital expenses, which generally need to be deducted over a number of years.
There are three golden rules to remember when it comes to business deductions:
- The expense must have been for your business, available as an allowable deduction and not for private use.
- If the expense is for a mix of business and private use, you can only claim the portion that is used for your business.
- You must have records to prove it.
How you claim your deductions will depend on your business type. The ATO website and small business tax time toolkit are great places to start when working out what expenses you can claim, or you can speak with a registered tax professional.
What is the small business skills and training boost (and is my business eligible)?
The small business skills and training boost is available to small businesses with an aggregated annual turnover of less than $50 million and offers an additional 20 per cent tax deduction to train new and existing employees. If you’re eligible, you can claim a deduction for the cost of external training courses delivered to employees in person in Australia, or online, but the providers need to be registered in Australia. The boost is available until 30 June 2024.
If you’re a non-employee business owner, like a sole trader or partners in a partnership, the bonus deduction isn’t available to you. You can find information about what, when and how you can claim the small business skills and training boost on the ATO website.
I own a pet grooming business and my pet pug welcomes clients as they come in the door. Can I claim my pet expenses?
Generally, costs associated with maintaining animals are private in nature and not deductible, even if your pug welcomes your clients as they come in the door. The main difference is whether the animal performs part of the income-producing activity for your business and contributes to the production of that income (for example, a working dog on a sheep farm who has been trained for their role from a young age), and is not treated like a pet.
SEE ALSO: How to Save Money: Top Budgeting Tips from Real Businesses
What should I know about my tax return as a sole trader?
What are the key changes for this tax year that I need to know about?
There are a couple of changes that sole traders should be across this financial year. If you’re a sole trader who drives your vehicle for work, you may be able to claim expenses using the cents per kilometre method. The cents per kilometre rate for 2023–24 has increased to 85 cents per kilometre. This method allows you to calculate a set rate for each business-related kilometre travelled, up to a maximum of 5000km.
If you use this method, remember, it includes all of your vehicle’s running expenses, such as registration, servicing, fuel and insurance, so you can’t claim these separately. If you purchased a vehicle for your business in the 2023–24 financial year, the car limit has also increased. It’s now $68,108. The car limit is the cost you can use to work out the decline in value of passenger vehicles, designed to carry a load of less than 1 tonne and fewer than nine passengers.
If you’re a sole trader and have employees, there’s also the small business skills and training boost, which offers eligible small businesses an additional 20 per cent tax deduction to train new and existing employees. You can claim a deduction for the cost of external training courses delivered to employees in person in Australia or online, but the providers need to be registered in Australia.
I’m a social media content creator. Can I claim for my props?
What you can claim as a content creator depends on what your business is. If you create make-up tutorials for Instagram and TikTok, then any make-up or props featured and used only in these videos may be deductible – as long as you’ve kept your receipts. Like other deductions, if the make-up or props are also used in your personal life, you can only claim a deduction for the portion of the cost associated with the business use.
As for whether you’re in business or not, generally, a business involves a set of continuous and repeated activities you do with the intention of making a profit. This can be through cash or non-cash goods, like flights or tickets to a concert.
SEE ALSO: Tax Return Tips to Get the Most Out of Your Return in 2024
Does a new range of paint markers count as claimable office stationery?
Depending on your business type, and if you use the paint markers for work purposes, then yes, you can claim them. If you use the markers for a mix of business and private use, remember to only claim the portion that is used for your business.
There are some expenses that relate to both work and personal usages. How do I make sure I apportion them correctly?
You can’t claim a deduction for an expense that is incurred for a private purpose. How you apportion your expenses will depend on how much of the expense relates to running your business. For example, if you purchase a laptop for your business, you can claim a deduction for the full cost. However, if you use the laptop 50 per cent of the time for your business and 50 per cent of the time for private use, then you can only claim a deduction for 50 per cent of the cost.
The key to claiming correctly is keeping good records to show how you have apportioned your expenses.
Can a sole trader claim the 20 per cent bonus deduction for skills and training?
Yes, they can but only for providing training to their employees. For example, if you’re a gardener operating as a sole trader and you and your employee undertake turf management training you can’t claim the bonus deduction for yourself, but you can claim it for your
employee.
SEE ALSO: 10 Ways to Refresh Your Office Tech
What types of expenses raise red flags with the ATO?
We have sophisticated programs and technology to detect incorrect claims, but when it comes to deductions, we want you to get it right and claim what you are entitled to. The small business tax time tool kit is a great place to start if you are not sure what you can claim.
The ‘red flags’ we often see are around travel or entertainment expenses, home-based business expenses and motor vehicle expenses. So, big deductions for business meals, travel or entertainment can sometimes raise red flags if the claim seems too high for the business.
It's important to apportion your expenses properly. If you are on a work trip and extend it by a couple of days to catch up with a friend, you can’t claim any accommodation or meals on the days you aren’t working, as they're private expenses. Good record keeping will ensure you are claiming what you are entitled to and will avoid raising any red flags. Your records need to:
- explain all your transactions
- be in writing, either paper or electronic
- be kept for five years (however, some records may need to be kept for longer).
If you’re a sole trader, you can use the myDeductions tool through the ATO app to record your expenses, work related trips and income. It makes it easier and more convenient to capture your expenses on the go and keeps everything in one place.
SEE ALSO: 10 Tax Deductions You Could Be Claiming
What should I know about my tax return as an employee?
What are the key changes for this tax year that I need to know about?
If you’re eligible to claim work-related car expenses this tax time, remember, there are two ways you can do this: the cents per kilometre method or the logbook method. If you choose to claim using the cents-per-kilometre method, this rate has now increased from 78 cents to 85 cents for the 2023–24 income year. The cents per kilometre rate is all-inclusive and covers all of your eligible car expenses, including registration and insurance, maintenance and repairs, fuel, and decline in value. You can’t claim these costs separately, elsewhere in your return. Just make sure you’re keeping the right records.
And while we’re on the topic of work-related car expenses, if you own an electric vehicle and use it for work, we’ve recently published some new guidance on how to claim for the additional electricity costs incurred when charging your car at home.
I don’t have a uniform, but I am required to wear ‘business attire’ to work. Can I make a claim for these clothes?
You can’t claim a deduction for buying, hiring, repairing or cleaning conventional clothing you buy for work, even if your employer says you need to wear that clothing, or you only wear it to work. ‘Conventional clothing’ is everyday clothing worn by people regardless of their occupation (for example, black trousers worn by waiters, or business attire worn by office workers). You can’t claim those RM Williams boots just because you wear them to the office.
For a ‘compulsory uniform’ to be deductible, your employer must make it compulsory to wear that uniform through a strictly enforced workplace agreement or policy. A compulsory uniform must be sufficiently distinctive to your particular organisation, so a casual observer can clearly identify:
- you as working for that employer
- the products or services provided by your employer.
You can learn more about deductions for clothes and items you wear at work on the ATO website.
I work from home most days of the week. Can I claim all of my internet usage? I also used my personal phone to dial into a meeting last year. Can I claim my phone and phone bill?
The way you claim (and the amount you claim) for your phone and home internet usage will depend on the method you use to calculate a working-from-home deduction. If you’re eligible to claim a working-from-home deduction, there are two ways you can do this: the fixed rate method or the actual cost method.
The fixed rate method allows you to claim a set rate for every hour you work from home, and covers your additional running expenses that are often difficult to apportion, such as your phone and internet usage, electricity and gas, stationery, and computer consumables (like printer ink). You can’t claim these items separately if you use the fixed rate method, but your deduction can include working-from-home expenses, which the rate doesn’t cover, such as decline in value of depreciating assets used for working from home.
Using the actual cost method, you work out your deduction by calculating the actual additional expenses you incur when working from home, such as your phone, data and internet expenses. Where you incur running expenses for both private and work purposes, you need to apportion your deduction. You can only claim the work-related portion as a deduction. Whichever method you use, you’ll need to make sure you have the right records, or your deduction may be disallowed.
SEE ALSO: Mistakes to Avoid When Claiming Work from Home Tax Deductions
Can I use my bank or credit card statement as evidence of my work-related expenses?
In most cases, a bank or credit card statement (on its own) isn’t a sufficient level of evidence to claim a deduction for work-related expenses. You’ll need a record that shows you spent the money, the connection the expense has to your income and the portion of that expense that is work related. This could include purchase receipts, a logbook of your car journeys, records of the hours you work from home, and more – depending on your expense type. Your deductions can be disallowed if you’re not eligible or you don’t keep the right records.
How do I know what tax bracket I am in for 2023–24 return?
You can check what your tax rate will be on the ATO website. We also have a simple tax calculator that can work out just the tax you owe on your taxable income for the full income year. But it’s important to note that this is just a rough estimate that doesn’t include the Medicare levy, Medicare levy surcharge, or any study or training support loan repayments.
It also doesn’t consider any deductions you may be able to claim, which is why it’s so important to keep good records of any work-related purchases where your employer doesn’t reimburse you.
If I lodge my return myself instead of using an accountant, what should I look out for?
If you’re lodging your own tax return, you will need to lodge by 31 October. Don’t lodge too early, though. While tax time does start on 1 July, it’s better to wait a few more weeks, after your income statement has been finalised by your employer and most of your other information has been prefilled into your return (saving you time!).
Then, all that’s left is your deductions. Make sure you’re across the deductions you can claim; and claim no more, no less. Remember that you’re ultimately responsible for the claims in your tax return even though your agent might have prepared it and lodged it. Calculation rates and methods are always changing, so don’t just ‘copy and paste’ from prior years.
This is general information only. Seek professional financial and/or legal advice to determine the right outcomes for your business or individual needs.
