Understanding which expenses are deductible and how to claim them can significantly impact your business’s bottom line. Meanwhile, ensuring business tax compliance protects you from issues during audits and possible penalties from the Australian Taxation Office (ATO). 

This article tackles some of the most common tax deductions that get misclaimed. We will cover computers, meals, loan payments, and car payments. By the end of this guide, you will have a comprehensive understanding of how to maximise your tax deductions without overclaiming. 

Let’s dive right in!

Are computers tax deductible for a business?

In Australia, businesses can claim tax deductions for computers used for business purposes. However, you need to follow specific eligibility criteria and processes to ensure compliant computer tax deductions. 

Eligibility criteria

If you want to claim a tax deduction for a computer, the primary criterion is that you must use it for business purposes. This includes tasks such as emailing, researching, creating work documents, and other business-related activities. 

Businesses must demonstrate a direct connection between the use of the computer and income-producing activities. You can do so by maintaining records that show how you use the device. 

Depreciation rules

Computers are depreciable assets, meaning you can deduct their cost over their effective life as per the ATO guidelines: 

• Laptops and tablets: Typically depreciated over 2 years.
• Desktop computers: Typically depreciated over 4 years.

Typically, you’ll need to use the depreciation method if the computer costs over $300. 

Small business instant asset write-off

Small businesses with an annual turnover below $10 million can take advantage of the instant asset write-off. This means that you can claim the entire amount in the financial year you bought or first used the computer. The limit on the amount you can claim per purchase varies annually. In 2024, it was $20,000. In 2025 the Government has proposed extending this $20,000 again, but it has not yet been made law.

Documentation and record-keeping

Proper documentation and record-keeping are crucial for claiming computer tax deductions. Businesses should keep:

• Proof of purchase: Receipts or invoices showing the cost and date of purchase.
• Usage records: Documentation demonstrating the business use of the computer, such as diary entries or logs.
• Apportionment records: If you use the computer for both business and personal purposes, you must maintain records showing the percentage of business use. This can be done by keeping a diary for at least four weeks to establish the pattern of usage.

Example with calculation

Consider a small business that purchases a desktop computer for $2,000 on July 1, 2023. The computer is used 80% for business purposes and 20% for personal use. Since the cost exceeds $300, the business may depreciate the computer over its effective life of 4 years or, if eligible, utilise the instant asset write-off rules for the business use component.

Depreciation calculation

1. Determine the business use percentage: 80% of $2,000 = $1,600. Either:
2. A) Depreciate over 4 years: $1,600 / 4 = $400 per year; or
   B) Immediately write off the business use amount of $1,600.

Are meals tax deductible for a business?

In Australia, there are specific rules and regulations on how to claim meals as business expenses. It’s crucial for you to understand these conditions to claim meal tax deductions compliantly without missing out on this tax benefit.

Business vs. personal meals

The ATO distinguishes between business-related and personal meal expenses. Business-related meals are those you pay for to run a business, such as meals during business travel, client meetings, or employee training sessions. On the other hand, you can’t deduct personal meals. 

Examples of deductible business meals

• Client meetings: You can deduct meals you pay for during client meetings where you discuss business. 
• Business travel: If you travel for business, you can claim the meals you consume during the trip, provided they are reasonable.
• Employee training: Simple meals provided during employee training sessions can be deductible.

Entertainment expenses

The ATO classifies certain meal expenses as entertainment, which are generally not deductible. Entertainment expenses include meals that are part of social functions, such as parties or recreational events. The key is to determine whether the meal is for sustenance or entertainment purposes.

Exceptions and differentiation

• Simple meals, or “sustenance”: Meals that are simple and do not include alcohol, such as sandwiches and salads, may not be classified as entertainment and can be deductible.
• Business purpose: Meals with a clear business purpose, such as client meetings or business travel, are more likely to be deductible.

Fringe Benefits Tax (FBT)

Fringe Benefits Tax (FBT) applies to non-cash benefits you provide to employees, including meals and entertainment. This means that when you pay for employee meals, the cost is subject to FBT unless it is covered by a relevant concession or exemption. If a meal is subject to you can claim a tax deduction for the FBT paid and the cost of the meal.

Calculation and reporting requirements

You’ll need to calculate the taxable value of a meal or entertainment that qualifies under business-related expenses. 

If you provide these for employees, then you’ll also need to calculate FBT using one of these three methods: the 50/50 split method, the 12-week register method, or the actual method. In addition, you must report and pay FBT annually and may need to include the fringe benefit in the employee’s payment summary.

Documentation and record-keeping

You must maintain detailed records of meal expenses to substantiate deductions. Businesses should keep receipts, invoices, and logs of business meetings, including the purpose and attendees of each meal.

A log of business meetings should include:

• Date and location of the meal
• Names of attendees
• Purpose of the meeting
• Amount spent

Example with calculation

Consider a business meeting with an employee where the total meal expense is $200. Using the 50/50 split method for FBT calculation:

• Total Meal Cost: $200
• FBT Liable Amount (50%): $100
• Gross-Up Factor: 2.08
• FBT Rate: 47%
• FBT Liability Calculation:
  • FBT Liability = 100 x 2.08 x 0.47=$97.76

The business can claim a tax deduction for the FBT paid ($97.76) and the FBT-liable amount of the meal ($100).

Are loan payments tax deductible for a business?

You may not have considered loans as a tax-deductible item in your business expenses, but you can reduce your tax burden by including these on your claims. 

Here is how. 

Interest vs. principal repayments

To understand what part of a loan payment is tax deductible for Australian businesses, it’s important to distinguish between interest and principal repayments. You can claim tax deductions on the interest portion of your loan repayments, provided the loan is used for business purposes. 

However, the principal repayments — the actual amount borrowed — are not tax-deductible.

This distinction is essential because while the interest is considered a business expense, the principal repayment is seen as a return of borrowed capital, which does not qualify for deductions.

Types of loans

The type of loan you take out can also have a different impact on your loan tax deductions. 

• Term loans: These provide a lump sum to be repaid over a set period with interest. The interest paid on term loans is tax-deductible if the loan is used for business purposes, such as purchasing equipment or expanding operations.
• Business lines of credit: These offer flexible access to funds up to a specified limit. You can also deduct interest payments from your taxable income at the end of the financial year. 
• Specialised loans: These include equipment finance, fit-out finance, and tax debt consolidation loans. The interest on these loans is tax-deductible if you use them for their specified purposes, such as purchasing machinery or consolidating tax debts.

For all these loans, the key condition is that you must use the borrowed funds for business-related activities. If the loan is partially used for personal purposes, the interest deduction must be apportioned accordingly.

Refinancing and restructuring

Refinancing or restructuring a loan can also impact tax deductions. Generally, the interest on a refinanced loan remains tax-deductible if the new loan is used for business purposes. In addition, you can claim any costs associated with refinancing, such as loan procurement fees, legal costs, and stamp duty.  

Documentation and record-keeping

Proper documentation and record-keeping are vital for claiming tax deductions on business loans. Businesses should maintain detailed records of loan agreements, interest statements, and any other related documents. This helps in substantiating the expenses claimed and ensures compliance with tax laws.

Are car payments tax deductible for a business?

You can deduct certain car payments if you run a business in Australia. However, there are specific criteria and methods for calculating these deductions.

Eligibility criteria

To claim car expenses as tax-deductible, you must use an owned, leased, or hired vehicle for business purposes. Personal use, such as commuting to and from work, is not deductible.

Business use requirement

To determine the business use of your car, you must differentiate between business and personal use using one of these methods: 

• Logbook Method: Keep a detailed logbook for a continuous 12-week period, recording all business and personal trips. This method calculates the business use percentage based on the total distance travelled.
• Cents Per Kilometre Method: You can deduct a set rate per kilometre (88 cents for the 2024/2025 financial year) for up to 5,000 business kilometres annually. This method is simpler and does not require receipts,  but may result in a lower deduction if business use exceeds 5,000 kilometres.

Depreciation and running costs

Depreciation reflects the decrease in the car’s value over time. You can claim depreciation using one of these methods: 

• Straight-Line Method: Depreciates the car evenly over its useful life.
• Diminishing Value Method: Depreciates the car more in the earlier years, reflecting its actual value decline more accurately.

For example, if you buy a car for $50,000 with an expected useful life of five years and a residual value of $20,000, the annual depreciation using the straight-line method would be $6,000.

In addition to the actual cost of the vehicle, you’ll also have running costs, such as fuel, maintenance, insurance, and registration. You can claim these based on the business use percentage. For instance, if total running costs are $12,000 and the car is used 75% for business, the deductible amount would be $9,000.

Leasing vs. buying

If you make regular lease payments, these can be fully deductible if you only use the car for business. Leasing avoids tying up capital in a depreciating asset and may include some repair costs. However, you’ll have to continue making these payments irrespective of how much you use the vehicle. 

If you buy a car, you can claim depreciation and running costs based on business use (as discussed earlier). The upfront cost is higher, but the car becomes a business asset. If financed, interest on the loan is also deductible. The maximum depreciable value is capped at $69,674 for the 2024/25 financial year.

Documentation and record-keeping

If you use the Logbook method, you must maintain a logbook to substantiate business use. It should detail the date, odometer readings, purpose of the trip, and distance travelled. You must keep the logbook for at least five years after filing the car payment deductions. 

You only need to maintain the logbook for a 12 week period and tto calculate a business use percentage, and you may use this percentage for five tax years before having to complete another logbook.

It is also important to retain receipts and invoices for fuel, maintenance, insurance, and other running costs. 

Example calculation

Assume a business owner drives 15,000 kilometres in a year, with 75% being for business purposes. The total running costs amount to $12,000, and the car’s annual depreciation (using the straight-line method) is $6,000. The deductible amount would be calculated as follows:

• Running Costs: $12,000 x 75% = $9,000
• Depreciation: $6,000 x 75% = $4,500
• Total deductible amount = $9,000 + $4,500 = $13,500

The business owner can deduct $13,500 on their tax claim. 

FAQ

What are some common tax deductions that I can claim for my business?

Common tax deductions for businesses include expenses related to computers, meals, loans, and car payments. All of these should be related to your business activities in order to be tax deductible. 

Final thoughts

Understanding and maximising your business tax deductions can significantly benefit your financial health. This guide has covered essential areas such as computers, meals, loan payments, and car payments, providing you with the knowledge needed to navigate the complexities of business tax deductions in Australia.

For personalised advice and to ensure business tax compliance with the latest ATO regulations, get in touch with Lawpath. We can help!