The small business tax deductions most Australian owners miss

Every July we see the same thing: a set of books that is technically correct and still overstates the profit, because nobody claimed the things that were never entered as expenses in the first place. Bookkeeping software can only categorise what it is given. If the receipt never made it in, no amount of clever coding will find it.

This is the list we work through with clients. It is not exotic. It is the ordinary stuff that gets missed because it does not arrive as a neat business invoice.

The rule everything hangs off

A deduction has to be incurred in earning your assessable income, and it cannot be private or capital in nature. That is the whole test. Where owners get into trouble is not the test itself — it is the apportionment. Something that is 60% business and 40% private is 60% deductible, and you need a reasonable basis for that split.

Two things follow from that. First, "I'll just claim all of it" is how you turn a legitimate deduction into an amended assessment. Second, a mediocre record that supports a reasonable apportionment beats a perfect memory that supports nothing.

Deductions that routinely get left out

Home office running costs. If any part of the work happens at home — quoting at night, doing the books on Sunday, taking calls — there is a claim. You can use the ATO's fixed rate per hour, which covers electricity, gas, internet, phone and stationery, or you can work out actual costs. The fixed rate is simpler but it requires a record of the actual hours worked from home for the whole year, not an estimate at the end. A recurring calendar entry is enough.

Motor vehicle, properly. Sole traders and partnerships can use cents per kilometre up to a capped number of business kilometres, or the logbook method. Companies and trusts do not get cents per kilometre — they claim actual costs, with FBT consequences if there is private use. A 12-week logbook is valid for five years. Most people who "cannot be bothered" with a logbook are giving up several thousand dollars a year to avoid three months of light admin.

Interest on business borrowings. Not just the business loan. Interest on a credit card used for business purchases, the finance on the ute, and the interest portion of a chattel mortgage are all deductible to the extent of business use.

Bank fees, merchant fees and payment processing. Stripe, Square, PayPal and eftpos fees are usually netted off before the money hits your account, so the gross sale and the fee never appear separately. If your bookkeeping records only the net deposit, you are understating both income and expenses — which is wrong even if the profit happens to land in the right place.

Subscriptions and software. The accounting file, the design tool, the project management app, the AI subscription, the domain renewal, the cloud storage. These are small individually and meaningful together, and they are usually paid on a personal card.

Professional development and industry publications. Courses, conferences, licences and renewals, trade association fees, and the subscriptions you need to stay current. The connection to your current income-earning activity has to be real — a course that opens a new line of work is capital, not a deduction.

Bad debts. If an invoice is genuinely uncollectable and you have already brought it to account as income, you can write it off — but the write-off has to be a deliberate act recorded in your books before year end, not a decision you make in October when preparing the return.

Prepaid expenses. Small business entities can generally claim a prepayment immediately where the service period is 12 months or less and ends in the next income year. Insurance, rent and subscriptions paid in June are the usual candidates. This is a timing lever, not free money — but it is a useful one when you have had a strong year.

Superannuation for yourself. Personal deductible contributions, subject to the concessional cap and a notice of intent lodged with your fund. If your taxable income has landed higher than expected, this is often the last remaining lever after 30 June has passed — and it is one of the few.

Depreciating assets and the write-off threshold

Assets under the current instant asset write-off threshold can generally be deducted in the year they are first used or installed ready for use. Assets above it go into the small business pool and are depreciated.

The threshold has moved repeatedly over the last few years, and legislation has been retrospective more than once. Do not plan a purchase around a number you remember from a previous year — confirm the current threshold before you commit, because the difference between an immediate deduction and a pooled write-down changes the cash flow of a $40,000 purchase materially.

Two things people get wrong here. Installed ready for use means exactly that — a machine sitting in a crate on 30 June is not deductible that year. And the write-off applies per asset, not per invoice, so a single purchase order covering five items is tested item by item.

The three the ATO looks at hardest

Motor vehicle claims without a logbook. Data matching against registration records, tolls and fuel cards is good and getting better. If you claim a high business-use percentage on a dual-cab that also does the school run, expect to be asked.

Home-to-work travel dressed up as business travel. Travel between home and a regular place of work is private, full stop — including when you carry tools, unless the tools are bulky, secure storage is not available at the workplace, and the transport is genuinely necessary. That exception is narrower than the internet believes.

Entertainment. Client lunches are generally not deductible, and the parts that are usually attract FBT. The "it was a business meeting" framing does not change the character of a meal. Genuinely deductible business travel meals are a different thing and need to be treated differently.

What to actually do about it

The realistic fix is not a better memory in June. It is a system that catches the expense at the moment it happens:

• One card used exclusively for business, reconciled weekly rather than annually.
• Receipt capture through your accounting app at the point of purchase, not a shoebox.
• A logbook started now, so it is valid for the next five years.
• A standing quarterly conversation with your accountant instead of one annual autopsy.

The deductions above are worth real money, but almost all of them are lost at the point of capture, not at the point of lodgement. Fixing the capture is a one-week job that pays every year afterwards.

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This article is general information current at the time of writing, and tax rates, thresholds and rules change — often with effect from a date that has already passed. It does not take your circumstances into account and it is not tax advice. If you would like your own position looked at properly, book a free consult and we will go through it.