What Business Expenses Are Tax Deductible - and What Definitely Aren’t

Running a business comes with regular costs. Whether you’re filling the car to get to meetings, buying office supplies, or paying for business tools, expenses can quickly stack up.

But which of these can actually reduce your tax bill?

Knowing what qualifies as a business expense tax deductible can help you stay compliant and avoid overpaying.

Not Everything You Spend is Claimable

Each year, the Australian Taxation Office (ATO) handles a substantial number of rejected claims. Some business owners go too far trying to write off personal spending. 

To illustrate: 

• A mechanic tried to deduct a microwave, an air fryer, vacuum cleaners, a TV, and gaming gear. All were knocked back as personal items.
  
  
• A truck driver claimed swimwear to cool off during transit stops. Denied.
  
  
• A fashion manager tried to claim over $10,000 in designer clothes for attending work events. The ATO rejected it all as ordinary, non-deductible clothing.

These examples show that even if you think something is work-related, the ATO won’t agree unless it directly supports your income generation.

So, What Is a Legitimate Deduction?

To count as a business expense that is tax deductible, your spending needs to meet three key conditions set by the ATO:

1. The expense must be directly related to earning business income.
   
   
2. If it’s for both business and personal use, only the business portion can be claimed.
   
   
3. You must have clear records to support it.
   
   

Here are some common deductible expenses:

• Office supplies and tools
  
  
• Rent on commercial space
  
  
• Business-related travel and accommodation
  
  
• Phone and internet used for business
  
  
• Depreciation on work equipment
  
  
• Employee wages and super
  
  
• Accounting or legal fees tied to your operations

If you’re ever unsure, a safe rule is this: if it’s not clearly tied to your business, it probably isn’t deductible.

Maximise Your Tax Return with Confidence. Not sure which business expenses are actually tax deductible? Speak to our professional Ipswich accountants at Skyways today by calling 0400 348 482 or visiting skywaysaccountants.com.au.

What You Shouldn’t Claim

Some expenses simply don’t qualify, regardless of how closely tied they may seem. These include:

• Entertainment expenses (food, drink or recreation). You cannot deduct the cost of entertaining clients or employees. Note: if you provide entertainment to employees and pay Fringe Benefits Tax on it, you may claim a deduction for the FBT liability itself, but never for the underlying  cost of the food, drink or recreation. 

• Traffic or parking fines (and other penalties). Fines incurred under law or regulation are non-deductible.
  
  
• Childcare fees or personal clothing. Any private or domestic spending is outside the scope of business deductions.
  
  
• Expenses linked to non-assessable income. If the outlay relates solely to income you don’t include in assessable income, it can’t be claimed.
  
  
• Payments where PAYG withholding/reporting obligations weren’t met. You forfeit the deduction if you haven’t complied with your PAYG withholding and reporting rules.
  
  
• The GST component of an expense you’ve already claimed on your BAS. You can’t double-dip by claiming the same GST twice. 

Attempting to claim any of these carries a high risk of review, audit adjustments or penalties, so it pays to be cautious.

Not Sure What You Can Claim?

If you're unsure whether a cost qualifies as a business expense or if the ATO will accept your claim, it's best to get expert advice before lodging. Let Skyways Accountants, experienced Ipswich Accountants, review your operational expenses and help you claim deductions you're entitled to.

Call 0400 348 482 or visit skywaysaccountants.com.au to book your review and take the guesswork out of tax time.