How tax deductions work

When you do your tax return, you can claim most business expenses as tax deductions to reduce your taxable income.

The Australian Taxation Office (ATO) calculates your taxable income using this formula:

Assessable income – tax deductions = taxable income

Most money you get from running your business is assessable income (income subject to tax).

Expenses you can claim as a deduction

You can claim most expenses involved in running your business. Just make sure:

  • they relate directly to earning your income
  • the expense was for your business, 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 have records to substantiate what you claim.

You may be able to claim deductions for certain business expenses including:

  • motor vehicle expenses
  • home-based business
  • business travel expenses
  • workers' salaries, wages and super contributions
  • repairs, maintenance and replacement expenses
  • other operating expenses
  • depreciating assets and other capital expenses
  • carbon sink forest expenses.

If you're a contractor or a consultant, your personal services income may affect the deductions you can claim.

If you are unsure about what deductions you can claim, contact your accountant, business adviser or the ATO.

Records you need to keep for deductions

If you claim business tax deductions, you’ll need to keep records to substantiate what you claim. Under tax law, your records must explain all transactions and be:

  • in writing, either on paper or electronically
  • in English, or in a form that we can readily access and convert into English
  • kept for five years (although some records need to be kept longer).

For more information, refer to the ATO’s information on:

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