Can I Claim It as a Business Expense?

You've bought something. You've got the receipt. You used it kind of for your business. So... does that mean you can claim it?

Not necessarily.

One of the most confusing parts of running a business is working out which expenses may be deductible, and which are simply personal expenses that happened while you were running a business.

Let's break down the basic idea in plain English.

First: what does "claiming an expense" actually mean?

This is an important one.

If something is deductible, it doesn't usually mean the government gives you the money back. Generally, an allowable business deduction reduces the income on which your tax is calculated.

For a very simplified example:

Your business earns $80,000.

You have $20,000 of allowable deductions.

That doesn't mean you receive $20,000 back.

Instead, those deductions are taken into account when determining your taxable income. The actual tax outcome depends on your circumstances.

So, what can a business generally claim?

A useful starting question is:

"Did I incur this expense in running my business or earning my business income?"

Common business expenses might include things such as:

• Advertising and marketing

• Business software

• Website costs

• Professional services

• Business insurance

• Office supplies

• Certain equipment

• Some phone and internet costs

• Certain travel or vehicle expenses

But there's an important catch.

The expense needs to meet the relevant rules for deductibility. Simply paying for something from your business bank account doesn't automatically make it deductible.

🐾 Nuffy's Example

Nuffy runs a graphic design business from home.

He buys a new design software subscription that he uses entirely for client work.

That's very different from Nuffy buying a new TV for his bedroom and saying: "Well... sometimes I watch business YouTube videos on it."

Nice try, Nuffy.

An expense doesn't become a business expense simply because you occasionally use it for something business-related.

What if something is partly business and partly personal?

This is where things get more interesting. Some expenses can have both business and private use.

Your phone is a good example. Imagine you use your phone: 60% for business and 40% personally.

You generally can't treat the entire phone bill as a business deduction just because you occasionally answer customer calls. You need to work out the business-related portion using an appropriate method and keep records supporting your calculation.

The same issue can arise with things like:

• Internet

• Vehicles

• Equipment

• Home office expenses

Paying from your business account doesn't make it deductible. This is another common misconception.

Imagine you use your business debit card to buy your weekly groceries. Those groceries don't suddenly become a business expense because the money came from your business account. Your payment method doesn't determine whether something is deductible. The nature and purpose of the expense matters.

What about meals and coffee?

This is where many people get caught. You can't automatically claim your lunch simply because you ate it while working.

Likewise: "I discussed business over coffee." doesn't automatically turn your coffee into a deductible business expense.

There are specific rules around meals, entertainment and work-related travel, so don't assume every expense that happens during your working day is deductible.

What about working from home?

If you operate your business from home, you may be able to claim certain expenses associated with working from home, depending on your circumstances. There are rules around what can be claimed and how it is calculated. You also need appropriate records to support your claim.

And remember: Working from home doesn't mean everything in your home becomes a business expense.

Unfortunately, Nuffy can't claim his entire electricity bill because his laptop was plugged in downstairs.

Keep the receipt!

Understanding whether an expense may be deductible is only part of the job. You also need appropriate records.

Depending on the expense and your circumstances, this might include:

• Receipts

• Tax invoices

• Bank records

• Logbooks

• Calculations showing business use

• Other supporting documentation

Good record keeping makes things much easier when tax time arrives.

Before claiming something, ask yourself:

1. Did I incur this expense in earning my business income?

If there's no genuine business connection, that's a warning sign.

2. Is any part of it personal?

If yes, you may need to separate the business and private portions.

3. Do I have records?

Don't rely on remembering everything months later.

4. Are there special rules for this type of expense?

Some expenses have specific tax treatment or record-keeping requirements. If you're unsure, check current ATO guidance or ask a registered tax agent.

🐾 Nuffy's Tip

Don't buy something just because someone tells you: "It's tax deductible!"

Spending $1,000 purely to get a tax deduction doesn't magically make you $1,000 richer. A deduction may reduce your taxable income, but you're still spending real money. Ask yourself whether the purchase actually makes sense for your business first.

Keep your business expenses organised

Knowing what you've spent is much easier when you're recording expenses as you go rather than trying to reconstruct an entire year at tax time Our Income & Expenditure Template gives small business owners a simple place to track business income and expenses throughout the year.

→ Explore the Income & Expenditure Template

Disclaimer

This article provides general educational information only and does not constitute tax, accounting, financial or legal advice. Deductibility depends on the nature of the expense and your individual circumstances, and tax rules can change. Check current ATO guidance or speak with a registered tax agent when determining what you can claim.