How to Make the Most out of Small Business Tax Deductions

You can claim tax deductions for the majority of costs you incur for operating your business – but perhaps there are some expenses you’re unsure about claiming, or are claiming or tracking inefficiently. 

To help you get the best return, let’s explore some of the most significant tax-deductible business expenses for small businesses. 

ATO rules for small business tax deductions 

The ATO shares three golden rules for claiming deductions as a small business. These state: 

• All expenses must be for business use, not private use.
• If an expense is a mix of business and private use, you can only claim the portion used for your business. 
• You must maintain records to prove expenses. 

Separating business and private expenses

For expenses that are used for both business and private use, separating out the business portion and private portion is called apportionment.

How you apply apportionment depends on the expense type, and how much of it relates to running your business. According to the ATO, the method you choose for applying apportionment should be “fair and reasonable”, reflecting any private use of the asset or purpose of the expense.

Key tax return dates 

The best time to claim deductions is during tax time. Your tax return covers the income year from 1 July to 30 June. To complete your tax return, lodge it or engage a tax agent by 31 October. 

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Tax-deductible expenses for small businesses

Let’s explore some of the most important and commonly claimed tax-deductible items for small businesses. 

Note: Depending on the nature of your business, some tax deductible assets may not be relevant to you. 

Physical tools and equipment 

Consider expenses such as: 

• Office furniture – desks, chairs, filing cabinets, and bookshelves. 
• Stationary – pens, paper, notepads, and folders. 
• Technological equipment – computers, monitors, security cameras, phones, and payment processing equipment. 

The government confirmed it will continue supporting cash flow and cost reductions for small businesses in financial year 2025 through the ATO’s instant asset write-off. Review the ATO website to check which assets you can immediately claim the full cost for, as well as the current asset thresholds. 

Physical assets may also be eligible for depreciation. Find out more about eligible deductions for depreciation.

Business software 

When it comes to tax breaks for small businesses, consider which of the following software or digital tools you use to run your business, such as: 

• Financial or accounting software 
• Payment processing platforms 
• Website hosting and domain registry 
• Design tools
• Customer relationship management systems

Rent & utilities 

If you rent a commercial property for your business premises, your rent payments are tax deductible. If you operate your business from home, you may be able to claim tax deductions for rent and utility expenses related to generating your income. 

There is a range of criteria to consider before claiming work-from-home expenses – such as record-keeping to substantiate the hours you work from home. Additionally, similarly to running a household, you may be eligible to claim business deductions for small businesses concerning utilities, such as electricity, water, and internet. 

Motor vehicle expenses 

For vehicles you use exclusively for your business, you may be eligible to deduct expenses related to owning and operating them.

For vehicles that are used for both business and personal use, you may be able to deduct the portion that is used for business. 

Whichever situation is relevant to you, be sure to keep accurate records to demonstrate business use, and consider common car tax deductions for expenses such as:

• Fuel 
• Servicing and repairs 
• Lease and interest payments on vehicles
• Insurance 
• Registration
• Vehicle depreciation

Employee salaries and wages 

The salaries and wages you pay team members can be deducted.

Note: This depends on your business structure. Different tax deduction rules for salaries and wages apply to different business types. Such business deductions may apply to companies and trusts, but be inapplicable for sole traders and partnerships. 

Find out more about sole trader tax deductions here.

Super contributions 

There are some tax deductions that aren’t as strictly categorised as business expenses, such as charitable donations and super contributions. 

If you make personal contributions to your superannuation fund, you may be eligible to claim a deduction for contributions up to a certain amount. 

Note: For personal contributions to be tax deductible, you must submit a valid 'Notice of intent to claim or vary a deduction for personal super contributions' form to your superannuation fund within the specified time frame and obtain a written acknowledgement from your fund.

Eligibility for this deduction can vary. Refer to the ATO website to be sure.

Other deductions  

Other common tax-deductible expenses for small businesses include the following:

• Insurance – cover for tools, equipment, vehicles, and professional indemnity. 
• Training – relevant to your role or your employees’ roles. 
• Membership subscriptions – to industry bodies and other service providers. 
• Tax management expenses – small business bookkeeping expenses for your accountant or bookkeeper. 
• Marketing – physical and digital collateral, from flyers and brochures, to advertising. 

Small business bookkeeping

Be sure to keep accurate records to demonstrate how you apportion expenses—for instance, by keeping a log of working hours for work-from-home expenses (occupancy and running). Alternatively, use the logbook method when claiming expenses for a vehicle. 

If your business seeks a tax deduction, your claim for a deduction may be denied unless you have proof or documentation to prove a transaction occurred. Evidence of all tax-deductible expenses for small businesses includes all financial documents your company creates and receives.  

These documents are the foundation of all accounting records for tax purposes and may include the following: 

• Invoices and tax invoices
• Employee records (wages, super, tax declarations, and contracts) 
• Vehicle records 
• Bank statements 
• Cheque butts
• Credit notes
• Purchase orders
• Purchase invoices
• Receipts

Whether you use paper or digital systems, or a mixture of both, ensure you conduct regular reconciliation so your records are accurate, and any discrepancies or errors can be easily picked up on and corrected. 

Records must be kept for 5 years.  

Different calculation methods

Finally, it’s important to note there can be different calculation methods to claim tax deductible items for small businesses. Some calculation methods may be better suited to your business, depending on your business structure and how you use certain assets. 

For example, applying cash versus accrual accounting methods, calculating your work-from-home deductions (we have a helpful article here), or motor vehicle expenses (head to our self-employed mileage guide for more info).

Remember to maintain accurate records and keep abreast of the latest ATO updates. Consult a tax professional when in doubt.