What business expenses can I claim in Australia?
Australian businesses can claim a deduction for any expense that is incurred in carrying on a business to produce assessable income, provided it is not private or capital in nature. Common deductible expenses include rent, wages, professional fees, insurance, marketing, subscriptions, and motor vehicle costs.
Detailed Explanation
The general deductibility rule in Australia is straightforward: a business can deduct a loss or outgoing to the extent it is incurred in gaining or producing assessable income, or is necessarily incurred in carrying on a business for that purpose. This is found in section 8-1 of the Income Tax Assessment Act 1997.
What makes an expense deductible
For a deduction to be allowable, the expense must: 1. Have a sufficient connection to the business's income-earning activities 2. Not be private or domestic in nature (personal expenses are excluded) 3. Not be capital in nature (capital expenditure is handled separately) 4. Not be explicitly excluded by the tax law
If an expense has both business and private elements (a mixed-use expense), you can claim only the business portion.
Commonly claimable business expenses
Premises and occupancy: - Rent and lease payments for business premises - Office running costs (electricity, gas, internet, cleaning) - Council rates and building insurance for business premises - Home office expenses (see below)
Motor vehicles: - Fuel, oil, tyres, repairs, registration, and insurance for vehicles used for business - If the vehicle has private use, you must apportion and claim only the business percentage - ATO log book method: keep a log book for 12 continuous weeks every 5 years to establish the business-use percentage - Cents-per-kilometre method: claim a flat rate per business kilometre (currently 88 cents/km for 2024-25), up to 5,000 km per year per vehicle
Wages and salaries: - Wages, salaries, and super contributions for employees - Director's fees and salaries paid to yourself (must be on arm's-length terms) - Contractor fees and labour costs
Professional services: - Accountant and bookkeeper fees - Legal fees (for income-earning or business-protecting purposes) - Financial advisor fees related to business income
Marketing and advertising: - Website development and hosting - Paid advertising (Google Ads, social media) - Printing, brochures, promotional items
Technology and software: - Software subscriptions (accounting software, project management, CRM) - Hardware (computers, phones) — see instant asset write-off - Mobile phone costs (business-use portion)
Insurance: - Public liability, professional indemnity, product liability - Workers' compensation insurance - Business interruption insurance
Finance costs: - Interest on business loans and overdrafts - Bank fees and merchant service fees - Lease financing costs for business assets
Home office expenses
If you run your business from home or work from home, you can claim home office expenses using either: - Fixed rate method: 70 cents per work-from-home hour (2022-23 onwards). Covers electricity, gas, internet, phone, stationery. You must keep a diary or timesheet of hours worked from home. You can additionally claim depreciation on home office equipment. - Actual cost method: Calculate the actual additional costs of working from home based on your dedicated work area. Requires more detailed records.
Capital expenditure vs. immediate deductions
Capital expenditure (purchases of business assets) is generally not immediately deductible — it is depreciated over the asset's useful life. However, the instant asset write-off allows eligible businesses to immediately deduct the full cost of qualifying assets in the year of purchase.
Prepaid expenses
Prepaid expenses (paying for something in advance of when you receive the benefit) are deductible in the year of payment if the prepayment period is 12 months or less and the service period ends no later than 12 months after the end of the income year in which you paid.
Record-keeping requirements
The ATO requires you to keep records of all business expenses for 5 years. Records include receipts, invoices, bank statements, and other documentary evidence. For motor vehicles using the log book method, you must retain the log book.
Source: ATO Business deductions
Real-World Examples
Apportioning a mixed-use mobile phone
A sole trader uses their mobile phone 70% for business and 30% for personal calls. Their annual phone bill is $1,800. They can claim $1,260 (70%) as a business deduction. They need to document the business-use percentage through call records or a reasonable estimate based on billing.
Home office claim using fixed rate method
A freelance designer works from their home office 8 hours per day, 5 days per week, for 48 weeks per year (1,920 hours). Using the fixed rate method of 70 cents/hour, they can claim $1,344 for the year. They can claim depreciation on their desk, chair, and computer equipment separately.
Common Mistakes to Avoid
- Claiming 100% of a vehicle's running costs without applying a log book apportionment — the ATO regularly audits vehicle expense claims where private use is not excluded.
- Treating capital purchases (computers, equipment) as immediate expenses rather than depreciating them — unless you qualify for the instant asset write-off.
- Claiming personal or family expenses through the business by incorrectly labelling them as business expenses.
- Not keeping receipts and invoices for 5 years — the ATO can disallow deductions without documentary evidence, even if the expense genuinely occurred.
Frequently Asked Questions
Can I claim meals and entertainment as a business expense?
Business meals and entertainment are partially claimable but subject to Fringe Benefits Tax (FBT) rules. Entertainment provided to employees (including yourself as an employee-director) may be subject to FBT. Meals that are minor, infrequent, and irregular may qualify for the minor benefit FBT exemption. Client entertainment is generally not deductible. Keep detailed records of the purpose and attendees for all meal expenses.
Can I claim clothing as a business expense?
Only clothing that is distinctive and non-conventional (a branded uniform) or protective (safety gear, high-visibility clothing) is deductible. Conventional business clothing — suits, dresses, and smart-casual attire — is not deductible even if you only wear it for work, because it has an everyday private use.
Is travel from home to my work premises deductible?
No. Travel between your home and a regular place of work is considered private travel and is not deductible. However, travel between two separate workplaces in the same day, travel from your home to a client site when you do not have a fixed workplace, or travel required to carry heavy tools or equipment may be deductible.
What records do I need to keep for business expenses?
You need to keep records for 5 years from when you lodge your tax return. For most expenses, a tax invoice or receipt is required. For vehicles using the log book method, you need the original log book plus odometer records. For home office, you need a diary of hours worked from home. For travel, a travel diary is required for journeys involving both business and private elements lasting 6 or more nights.
Practical Tips
- Use separate bank accounts and credit cards for business and personal expenses from day one — this makes expense categorisation straightforward and demonstrates a clear business/private boundary to the ATO.
- Photograph receipts immediately after purchase and upload them to your accounting software — paper receipts fade and are easily lost over the 5-year retention period.
- Review your motor vehicle log book every 5 years and maintain it for 12 consecutive weeks to reset your business-use percentage, which can increase your deduction if business use has grown.
- At year end, review whether any large planned purchases (equipment, machinery) should be brought forward to access the instant asset write-off in the current financial year.
Ask Finn your Australia accounting questions
Finn knows Australian Taxation Office (ATO) rules and your specific business numbers. Get instant answers in plain English.
Try free for 14 days