Tax tips for small business: 4 surprising tax deductions

You might not think tax season is too much fun, but for our small business accountants in Melbourne, it’s the best and busiest time of the year!

For many small business owners, the only thing that keeps them going (besides the consequences of not filing on time, that is) are the deductions their business will enjoy once they’re done.

Every small business owner wants to find ways to save money – tax deductions are one way of doing just that.

Unfortunately, some business owners don’t realise how many business expenses are deductible and may miss out on many potential savings as a result.

Need support or assistance during tax time? Our business tax accountants are ready to help!

What you can claim on your small business tax return?

Before we get into some of the more surprising tax deductions, let’s take a quick look at some of the most common and standard deductions you may be able to make.

What are some possible tax deductions for small businesses?

Three of the most common tax deductions are vehicle expenses, office expenses, and business travel.

Vehicle expenses

If you find yourself travelling for work, you can claim a petrol allowance as well as other expenses such as toll roads or public transport. Please note that you cannot claim vehicle expenses when driving to and from your workplace.

Home- and/or office-based expenses

You may be able to claim deductions for a range of home- or office-based expenses, including utilities. If you rent an office space, you may be able to deduct lease payments.

If you are an employee working from home, your small business tax agent will explain what you can claim (and how much). A temporary shortcut method was introduced by the ATO as a result of COVID-19 and can be applied until 30th June 2022.

Business travel expenses

If you travel for work, you may be able to claim the costs of your accommodation, transport, and flights. Note that travel must be for the purpose of conducting work duties.

4 lesser-known tax-deductible business expenses

When it comes to business accounting, it’s essential that you apply for the right deductions.

Your business tax returns probably already include deduction claims for the most common expenses like office supplies and repairs for property.

However, the list of deductions doesn’t end there. In fact, it can also include expenses you wouldn’t have ordinarily thought of, such as…

1) Home office expenses

With many Australians (small business owners included) opting to work from home in response to recent events, it’s little wonder that we’ve seen a run on office supply stores, with computer monitors, desks, and more selling out in record time.

There’s a silver lining, however.

Since it’s still ultimately for work purposes, your purchases and set-up costs will be tax-deductible.

That means despite being set up in your home, your new desk, keyboard, computer monitor and webcam can still be claimed as a business expense. (Provided it’s under $300 per item, otherwise will be considered capital and depreciated.)

2) Musical instruments and props

If you thought these fell under entertainment expenses, think again!

Whether you’re a musician, performance artist, or screen actor, you need props and instruments. And as they’re an essential part of your business (performance), you can claim a deduction on them.

If you ask our small business accountants in Melbourne, this is one of the most interesting categories due to the sheer variety of purchases that may fall under this umbrella.

In addition to common items like musical instruments and cameras, you may also see some interesting claims including costumes.

As niche products, these items can get expensive – all the more reason to get set up the proper way, and to maximise the deductions from these purchases.

3) Sunscreen and sun protection

The Australian sun is harsh – there’s a reason our country has the world’s highest rate of skin cancer.

Certain small businesses like landscapers, painters, carpenters and even childcare centres can see their staff working for long periods in the sun.

In practice, sunscreen is treated no differently from other types of essential PPE. And like other types of PPE, small businesses can claim the cost of sunscreen as a tax deduction as well.

If your small business sees you and your team making large or frequent sunscreen purchases, we suggest holding onto those receipts – you may be able to claim a deduction for them.

4) Man’s best friend

Yep, you heard that right!

Under the right circumstances, Rex or Fido can be a legitimate business expense that you can make a claim on.

Don’t go adding your beloved family pet to your list of deductibles just yet, however.

In order for dog-related expenses to be deducted, you have to be able to prove that the dog is actually helping you generate income.

Examples include:

• Guard dogs
• Farm dogs
• Trained therapy dogs (in some circumstances)

Unfortunately, that excludes your resident office dog!

Another thing to remember is that in most cases, the actual purchase cost of a pup isn’t tax deductible, as that’s considered a capital asset (which generally aren’t immediately deductible).

That said, the expenses that come with keeping your four-legged friend healthy are deductible. That means things like vet bills, pet food, and more.

A couple of guidelines

Really, there’s no limit to what you can claim as a deductible business expense.

When the end of the financial year rolls around in a couple of weeks, we encourage you to think laterally about what you can claim.

Of course, that isn’t an excuse to act cheeky.

According to the ATO, 7 out of 10 tax returns contain errors.

In some cases, it’s people trying to claim expenses that clearly weren’t related to generating an income:

• Tradies trying to claim holidays as “training trips”
• People trying to claim cigarettes as stress relief
• Trying to abuse travel fuel deductions for personal use

Thanks to the ATO’s sophisticated computer systems, expect incorrect claims to be rejected.

Besides these expenses, in practice is that most business expenses can be claimed, provided that they:

1. Relate directly to earning your income
2. Are exclusively for your business, not private use (if it’s mixed use, only business usage can be claimed)
3. Can be substantiated with receipts and invoices

With these criteria, that means just about any business expenses can be claimed, provided that they tick all three of these boxes.

In fact, the only small business expenses that aren’t eligible for deductions are private purchases, entertainment (including wining and dining clients), fines, and GST that isn’t listed on your BAS.

Our small business tax accountants ensure you don’t miss out on any deductions you’re eligible for

Tax time isn’t exactly the most fun for the regular small business owner. At Bruce Edmunds, however, it’s our favourite (and busiest) time of the year!
So you’ve got a big pile of receipts and invoices taking up space in the office.

Don’t throw them out just yet – instead, hang onto them. You may be throwing out several tax deductions for your business.

Our accountants in Melbourne have one mission: to help you grow your business. Come tax time, that means figuring out what deductions you’re eligible for, and minimising your tax burden as much as possible using legitimate methods.
If you need help with your business tax return in Melbourne, contact Edmunds today.

For tax advice that can help you maximise your deductions and help you save money, get in contact with our accounting firm today on (03) 9589 5488, or click here to reach us online.