From the ATO

Avoid the super guarantee charge (SGC) by paying your eligible employees’ super in full, on time and to the correct fund. For Payday Super, this means contributions need to be received by, and can be allocated by, the super funds within 7 business days after payday (unless longer applies). Pay super on payday as you need to allow time for payment processing and any corrections to be made.

Tip! - If you are unsure if your business is fully prepared for Payday Super, talk to your professional adviser.

Business deductions

Your business can claim a tax deduction for most expenses it incurs in carrying on the business if they are directly related to earning assessable income.

There are three golden rules for a valid business deduction:

• The expense must have been for your business, available as an allowable deduction and not for private use.
• If the expense is for a mix of business and private use, you can only claim the portion that is used for your business.
• You must have records to prove it.

Types of business expenses that are generally deductible include:

• certain capital expenses, such as the cost of depreciating assets like machinery and equipment used in your business;
• day-to-day operating expenses;
• purchases of products or services for your business.

You can also claim deductions for expenses related to protecting staff from safety hazards involved in performing their duties. For example, infection from transmissible diseases. This may include hand sanitiser, sneeze or cough guards, face masks, gloves, other personal protective equipment, antibacterial wipes and other cleaning supplies that are used for business purposes.

The amount of the deduction and when it can be claimed will depend on:

• the type of expense (for example, certain capital expenditures are deductible over time);
• whether it has any private or domestic purpose for which the deduction must be reduced.

The GST component of expenses cannot be claimed as a deduction if it can be claimed as a GST credit on a business activity statement.

What you can't claim

There are some expenses that are not deductible, such as:

• entertainment expenses, other than those provided as an entertainment-related fringe benefit;
• traffic fines;
• private or domestic expenses, such as childcare fees or clothes;
• expenses relating to earning income that is not assessable;
• payments for which your business has not met its PAYG withholding or reporting obligations;
• the GST component of a purchase if it can be claimed as an input tax credit;
• general interest charge or shortfall interest charge incurred on or after 1 July 2025 – if you’re an entity with a substituted accounting period, these changes apply from your next accounting period starting after 1 July 2025.

You generally cannot claim a deduction for the cost of capital assets that are dealt with under the capital gains tax rules, such as the land your business premises are on. Some exceptions apply for capital works, plant and certain expenditure of primary producers on improvements to land.

If you earn personal services income (PSI) and the PSI rules apply, the PSI rules will limit the deductions you can claim in relation to your PSI.

How to apportion expenses

You cannot claim a deduction for an expense to the extent it is incurred for a private or domestic purpose. Thus, if an expense only partly relates to running your business it will need to be apportioned between the deductible and non-deductible amounts.

If you have a home-based business and claim occupancy expenses, you will generally apportion these based on floor area and the time your home is used in your business. For running expenses, there is a variety of methods you may use depending on your circumstances.

There are different methods you can use to calculate deductions for motor vehicle expenses, depending on your business structure and the type of vehicle you are claiming them for.

For other expenses, you will generally apportion based on the private and business use of the asset or service acquired. This must be done on a fair and reasonable basis that reflects any private use of the asset or purpose of the expense.

You need to keep records to show how you have apportioned your expense. For example, if you incur an expense to repair your laptop which you only use for your business, you can claim a deduction for the full cost of the repair. However, if you use the laptop 50% of the time for your business and 50% of the time for private use, you can only claim a deduction for 50% of the cost of the repair.

When the simplified depreciation rules apply

The simplified depreciation rules apply to small business entities (aggregated annual turnover under $10 million) that choose to use them.

The rules apply to most depreciating assets. These are assets that have a limited life expectancy (effective life) and can reasonably be expected to decline in value (depreciate) over the time they are used.

Depreciating assets include:

• computers, laptops and tablets;
• motor vehicles (for example, cars, vans and tractors);
• office equipment (for example, coffee machines);
• office furniture (freestanding);
• tools and equipment (for example, electric sanders and saws).

Excluded assets

A small number of assets are specifically excluded from the simplified depreciation rules. For these assets, you must use the general depreciation rules for:

• assets that are leased out, or expected to be leased out, for more than 50% of the time on a depreciating asset lease;
• assets used in your research and development (R&D) activities;
• assets you allocated to a low-value assets (pool) before using the simplified depreciation rules;
• capital works, including buildings and structural improvements horticultural plants, including grapevines;
• software allocated to a software development pool (but not other software).

If you are a primary producer, for some primary production assets you can use either the general depreciation provisions, or the simplified depreciation rules.

Cost of asset

Under the simplified depreciation rules (including instant asset write-off), the cost of an asset includes both:

• the amount you paid for it; and
• any additional amounts you spent on transporting and installing it ready for use.

The cost also includes amounts you spent on improving, disposing of or permanently ceasing use of the asset.

GST

Whether the goods and services tax (GST) amount is excluded from the cost of your asset depends on whether you are registered for GST.

If your business is:

• registered for GST and can claim the full GST credit – you exclude the GST amount paid on the asset when calculating the asset's cost. This is because you will claim a credit for the GST paid in the business activity statement for the relevant period;
• not registered for GST – you include the GST amount paid on the asset when working out the asset's cost.

If only a portion of the GST credit can be claimed, then the cost is reduced by the portion claimed.

Trade-ins

When your business trades-in a car or any other asset, the agreed price of the trade-in is usually deducted from the amount paid for the new asset. While the sale and purchase may appear as one transaction, there are two transactions for depreciation purposes:

• purchase of a new asset; and
• disposal of an existing asset.

If the cost of the new asset (including any amount credited for the trade-in) is equal to or more than the relevant instant asset write-off limit ($20,000), it can't be immediately written-off and must be added to the small business pool.

Example: trade-in asset depreciation

Marilyn has a ceramic studio, that she runs as a sole trader and that qualifies as a small business. Marilyn trades-in her old car for $11,000 and buys a second-hand car at a cost of $25,000. Both cars are used 100% for business purposes.

For depreciation purposes, there have been 2 transactions:

• purchase of the new car for $25,000; and
• sale of the existing car for $11,000.

Although only $14,000 out of pocket, Marilyn must add the car to the small business pool because it cost $25,000, which exceeds the relevant instant asset write-off limit of $20,000.

Marilyn may need to adjust her small business pool balance or include an amount in her assessable income as a result of selling the old car.

Improvements to assets

Under the simplified depreciation rules, improvements to assets are depreciated.

If the improvement relates to an existing asset in the small business pool, you simply add the improvement cost to the pool as a cost addition amount. You also add costs incurred when disposing of, or permanently ceasing to use, an asset to the pool as a cost addition amount.

The amount of any cost addition that can be claimed is limited to the business use proportion (taxable purpose proportion) of the original asset. This is the portion used to earn assessable income.

If your business has a cost addition for an asset that has been written-off under the instant asset write-off rules in a previous income year, you can immediately deduct the cost addition amount under the instant-asset write off rules if:

• it is the first deductible cost addition amount incurred after the end of the income year in which the asset was written off;
• the cost addition amount is less than the instant asset write-off limit for the income year.

Any subsequent cost addition amounts can't be immediately deducted – instead they are placed into the small business pool.

Business versus private use

The amount of an asset's cost that can be claimed as a depreciation deduction is determined by how much the asset is used for business purposes (taxable purposes).

To work out if you can immediately deduct the cost of a depreciating asset or cost addition under instant asset write-off, you must consider whether the full cost of the asset or cost addition is less than the relevant limit. However, the depreciation deduction is limited to the percentage the asset is used for business purposes. You can't claim a deduction for the portion of the asset used for private purposes.

Changes in business use

You must review how much an asset is used for business and other taxable purposes in each of the first 3 years after the year the asset was added to the small business pool.

If this taxable use proportion changes by more than 10% from the most recent estimate, you must make an adjustment. The adjustment is made to the opening pool balance of the small business pool containing the asset and must be made before you work out the small business pool deductions for the year.

Instant asset write-off

The threshold for the instant asset write-off is $20,000. As reported in the Budget edition of TaxWise, the $20,000 threshold is to be made permanent.