Australia Business Expenses Guide

Australian business expense deductions. The guide covers: the general deduction rule (the "Section 8-1" of the "ITAA 1997") — the expense is deductible if: (a) the expense is incurred in "gaining or producing the assessable income" (the "first positive limb"), OR (b) the expense is "necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income" (the "second positive limb"), AND (c) the expense is NOT of a "capital, private, or domestic nature" (the "negative limbs"); the types of the deductible business expenses — the common deductible expenses include: (a) the "rent" (the "commercial rent" for the business premises), (b) the "utilities" (the "electricity, the gas, the water, the internet, the phone"), (c) the "insurance" (the "business insurance" — the "public liability insurance", the "professional indemnity insurance", the "business interruption insurance"), (d) the "accounting and the legal fees" (the "accounting fees", the "tax agent fees", the "legal fees" related to the business), (e) the "advertising and the marketing" (the "advertising", the "website costs", the "SEO", the "social media marketing"), (f) the "travel expenses" (the "business travel" — the "domestic travel" and the "overseas travel" if the travel is "wholly or principally" for the business), (g) the "motor vehicle expenses" (the "car expenses" — the "cents per kilometre method" at 85 cents per km or the "logbook method" for the substantial business use), (h) the "staff costs" (the "salaries, the wages, the superannuation, the training, the work-related items"); the home office expenses (the "home office deductions") — the business operator who uses the home as the "place of business" (the "home-based business") can claim the deductions for: (a) the "fixed rate method" (the "fixed rate of 67 cents per hour" for the "working from home" from 1 July 2023 — the rate covers the "energy, the internet, the phone, the stationery, and the computer consumables"; the taxpayer must keep the "diary records" for at least 4 weeks to establish the "work hours"), (b) the "actual cost method" (the "actual expenses" for the "dedicated home office area" — the "electricity, the gas, the internet, the depreciation of the furniture and the equipment"); the taxpayer must apportion the expenses based on the "floor area" of the home office as a percentage of the total floor area; the pre-business costs (the "pre-business expenses") — the expenses incurred before the business starts (the "pre-business costs" — the "feasibility studies", the "market research", the "business plan", the "registration fees", the "legal fees for the business structure") are deductible under the "Section 40-880" — the deduction is spread over 5 years (the "start-up costs" — the "deduction over 5 years") for the "blackhole expenses"; the substantiation requirements (the "receipts and the records") — the taxpayer must substantiate the expenses with the "written evidence" (the "receipts", the "invoices", the "contracts", the "bank statements", the "credit card statements") for: (a) the "work-related expenses" — the expenses of $300 or more (the "$300 threshold" — the taxpayer must keep the receipt for each expense of $300 or more), (b) the "laundry expenses" — the expenses of $150 or more (the "laundry threshold"), (c) the "travel expenses" — the "travel diary" for the travel of 6 or more consecutive nights; the taxpayer can use the "ATO app" (the "myDeductions" tool) to record the expenses; the non-deductible expenses — the expenses that are NOT deductible include: (a) the "capital expenses" (the "capital" — the purchase of the assets, the goodwill, the business name), (b) the "private or domestic expenses" (the "personal expenses" — the "food, the clothing, the gym, the childcare"), (c) the "fines and the penalties" (the "ATO penalties", the "traffic fines", the "court fines"), (d) the "entertainment expenses" (the "entertainment of the clients" — the "meals, the drinks, the tickets" — the entertainment expenses are NOT deductible for the "small business entities" and the "large business entities" from 1 July 2022; the "meal entertainment" for the employees is subject to the FBT), (e) the "political donations", (f) the "club dues" (the "social club memberships"), (g) the "expenses relating to the exempt income". All amounts in Australian Dollars (AUD). For related reading, see our Starting a Business Guide → and Motor Vehicle Tax Guide →.

Home Office — Fixed Rate Method

67 cents per hour: From 1 July 2023, the fixed rate is 67 cents per hour for the "working from home" expenses. The rate covers: (a) the "energy" (the electricity and the gas), (b) the "internet" (the data and the connection), (c) the "phone" (the mobile and the landline), (d) the "stationery and the computer consumables". The taxpayer must keep the "diary records" (the "time worked log") for at least 4 weeks in each income year.
Separate deductions: The taxpayer can separately claim the "decline in value" (the "depreciation") of the "office furniture" (the desk, the chair, the bookshelf) and the "office equipment" (the computer, the monitor, the printer) under the "fixed rate method". The "actual cost method" does NOT allow the separate claims (the fixed rate covers the decline in value of the office furniture and the equipment).

For the motor vehicle deductions and the logbook method, see our Motor Vehicle Tax Guide →.

Substantiation — $300 Threshold

Receipts for $300+: The taxpayer must keep the "written evidence" (the "receipt" or the "invoice") for each work-related expense of $300 or more. The total of all the expenses under $300 does NOT require the receipts (but the taxpayer must be able to explain the nature of the expense). The ATO may request the receipts for any expense during the audit.
5-year record keeping: The records must be kept for at least 5 years from the date of the lodgement of the tax return. The taxpayer can store the records in the "digital format" (the "electronic records" — the scanned receipts, the PDF invoices, the Excel spreadsheets).

For the non-deductible expenses and the entertainment rules, see our Starting a Business Guide →.