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Guide to Tax Deductions for Wages and Salaries
taxes

Tax Deductions for Wages and Salaries - Guide

As a business owner, understanding tax deductions for workers salaries, wages, and super contributions can help with managing your finances and ensuring tax compliance. This article will guide you through the deductions you can claim based on your business structure, compliance requirements, and personal super contributions. 

Additionally, we'll discuss how QuickBooks can assist you in managing these obligations with ease.

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Tax deductions for salaries and wages

Operating expenses, also known as working or revenue expenses, typically include the salaries and wages paid to your employees.

What deductions you can claim depends on your business structure:

Sole traders

As a business owner, you can't pay yourself a salary or wage. Any nominal payment is considered a distribution of profit.

So, as an example, John operates a small graphic design business as a sole trader. Since he is the owner, he can't pay himself a salary or wage. Any income he withdraws from the business is not a deductible expense.

Partnerships

As a partner, the partnership can't pay you a salary or wage since you're a partner and not an employee. Any nominal payment is considered a distribution of profit.

For example, Sarah and Tim run a marketing agency as a partnership. As partners, they can't receive a salary or wage from the partnership. Instead, they share the profits, which are not tax-deductible expenses for the business.

Companies and trusts

If your business is a company or trust, you can generally claim a deduction for any salaries and wages paid to you or other workers.

For example, XYZ Pty Ltd, a small software development company, employs five developers, including the director, Jane. As an employee, Jane receives a salary, which the company can claim as a tax-deductible expense.

Employing contractors

When you hire a contractor to perform a task for your company, it might be possible to deduct the payment you make to them. 

Before claiming deductions for payments to your employees, ensure you adhere to the pay-as-you-go withholding and reporting requirements for every payment.

If your earnings comprise personal services income (PSI), there could be restrictions on the deductible amount for payments made to an associate. 

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Super contributions for your workers

You can claim a deduction for super contributions made on time to a complying super fund or retirement savings account (RSA). This holds true for your employees and qualifying contractors. To determine which contractors this applies to, please refer to the Australian Taxation Office (ATO) guide: How to work it out – employee or contractor. The amount you can claim may be limited if your income includes PSI.

For more information on super contributions for employees more generally, check out the ATO’s complete guide to super for employers.



Here are two basic examples:

Sarah owns a cafe and employs several staff members. She contributes to a complying super fund for each employee on time, making these contributions tax-deductible for her business.

Paul, a sole trader, hires a contractor to help with his accounting business. The contractor meets the criteria for being considered an employee for super purposes. As a result, Paul contributes to a complying super fund for the contractor and can claim a tax deduction.

Personal super contributions

As a business owner, It’s crucial to strategise for your personal future and recognise the significant impact that superannuation can have on your quality of life during retirement. It might be possible to claim a deduction for your personal super contributions within your personal tax return. Furthermore, you could qualify for governmental super contributions, including the super co-contribution or the low-income super tax rebate.

How QuickBooks can help business owners

QuickBooks offers various features to help you manage salaries and wages effectively, especially in relation to tax compliance.

For example, QuickBooks helps simplify reporting by automating calculations, tracking expenses, and generating financial reports to help you manage your business better.

QuickBooks Payroll Software automates salary and wage calculations, considering employee hours, pay rates, and applicable taxes. This reduces manual work and minimises the risk of errors in payroll calculations.

In terms of your employees superannuation payments, QuickBooks can automatically calculate and track super contributions for your employees, helping you meet your obligations and remain compliant. You can also easily generate reports to provide an overview of the super contributions made for each employee.

Using QuickBooks can save you time and reduce the risk of errors, allowing you to focus on growing your business. Experience the benefits of QuickBooks for managing your business finances — get started today with a free 30-day free trial.

***Insert QuickBooks disclaimer like “Disclaimer: This page is provided for general information purposes only and does not constitute accounting, tax, business, or legal advice. You should always consult your own advisors for advice relating to your business or situation. Always consult the ATO directly as information changes from time to time:***

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Disclaimer: This page is provided for general information purposes only and does not constitute accounting, tax, business, or legal advice. You should always consult your own advisors for advice relating to your business or situation. Always consult the ATO directly as information changes from time to time.


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