You can claim tax deductions for expenses you incur while running your business if they’re directly related to earning business income (also known as assessable income).
Take Jane, for example. Jane is a sole trader who works as an IT consultant. As part of her work, she travels to deliver seminars and workshops.
Jane follows the 3 golden rules for claiming a tax deduction when she travels for business purposes:
- The expense must be for her business, not for private use.
- If the expense is for a mix of business and private use, she can only claim the portion that is used for her business.
- She must have the records to prove it.
Jane uses the myDeductions tool (available via the ATO) to store receipts for all her airfares, accommodation, public transport costs, ride-sharing fares, car hire fees, and other costs such as fuel, tolls, and car parking. She also records her meal costs if she’s away overnight.
Jane also keeps a travel diary to note which expenses were for business purposes and which expenses were private, such as sightseeing. The cost of her recent tour to the Louvre in Paris is not included in her deductions. There are some expenses Jane can’t claim, such as entertainment, traffic fines, and expenses related to earning non-assessable income.
As an employer, Jane meets her superannuation and employer obligations by reporting her employees’ salaries or wages and paying any tax withheld amounts on time. This allows her to deduct the salaries, wages, and super contributions she’s paid during the year.
By the time Jane is ready to lodge her tax return, her tax agent has everything they need to verify her deductions.
Be like Jane and perfect your record-keeping to correctly claim your business expenses and make tax time easier.
To check your record-keeping skills, you can use the ATO’s record-keeping evaluation tool.
Remember, registered tax agents such as us at Avoda Business Advisory can help you with your tax and super.