Businesses can incur many expenses, but not all of them are tax deductible. Aside from things like entertainment expenses, phone use and certain business travel, we highlight additional expenses you should think twice about before claiming.
While we’ve previously run through some of the popular mistaken tax deductions, you should be aware of a few more to avoid questioning and potential prosecution from the Australian Tax Office.
Generally, meals are not tax deductible, so the ‘client lunch’ is generally an ordinary non-deductible expense to the business. This is because the ATO generally classifies these as ‘entertainment expenses’ and they are therefore non-deductible.
However, there are exceptions. For example, meals are deductible for overtime work if you get paid an overtime meal allowance under an industrial award.
Further, the deduction cost of providing a meal might be available if by its nature it consists merely of simple, light refreshments within the work premises and is ultimately necessary, given the nature of business being undertaken (such as an all-day conference).
Buying Your Own Business
You cannot claim the costs of buying your own business because the ATO considers these to be capital in nature. Capital costs along with private and domestic expenses are not tax deductible for business.
However, ongoing costs like website expenses, licence renewal fees and annual registrations may be tax deductible.
No deduction is available for expenses you incur while carrying out volunteer work for a charitable organisation. However, a tax deduction is available for donations made to a recognised charitable organisation or church.
General Clothing and Accessories
While general clothing like corporate attire and shoes are not tax deductible, there are exceptions. An example is if the attire is emblazoned with your company logo or made for a specific purpose, in which case it becomes a ‘uniform’, which is tax deductible together with cleaning costs and expenses.
Also interesting to note is the ATO’s latest recognition that the cost of a woman’s handbag may be considered tax deductible if used primarily for work purposes, as is a man’s suitcase that may be considered a tax-deductible accessory.
The ATO considers child-minding expenses to be personal expenses that are not tax deductible. However, those who require child care while they are working may be eligible for a child care benefit and/or child care rebate from the Australian government, depending on their family income and other factors.
In some occupations, vaccinations are medically essential for business. For example, cattle farmers commonly require a vaccination against Q fever, which is a well-recognised occupational hazard in the cattle industry.
As a result, the ATO currently rules that medical expenses, which are necessarily incurred in carrying on a business for the purpose of gaining assessable income, are deductible in accordance with paragraph 8-1(1)(b) of the Income Tax and Assessment Act 1997.
Police record checks and clearances
Before you hire an employee, you may feel compelled to carry out necessary police checks and clearances. This may be particularly necessary if you are in the business of providing security, law enforcement or if you work with or around children.
Are such expenses generally tax deductible? Currently, the answer is no. The ATO reasons that such expenses are incurred at a point too soon (before the employee starts working in the business and earning assessable income) and are therefore not deductible.
Understanding the tax deductions available to you can help you process your tax return faster. For more information and tax tips, have a look through our Small Business Centre today.