What Business Expenses Are (and Aren’t) Tax Deductible in Australia

Running a business in Australia means keeping a close eye on your numbers – and come tax time, it’s vital to know exactly what you can claim as a business expense.

The Australian Taxation Office (ATO) offers clear guidance, but the rules can still feel murky – especially when it comes to things like your car, home office, or Friday arvo staff drinks. 

Whether you’re a sole trader, small business owner, or managing a growing company, this guide breaks down what’s deductible, what’s not, and where you need to tread carefully. 

What Makes an Expense Tax Deductible? 

The ATO’s golden rule is simple: to claim a deduction, the expense must be incurred in the course of running your business and must not be private in nature. 

To be deductible, an expense needs to tick all three of these boxes: 

1. It must be directly related to earning your assessable income 

1. It must be properly documented (i.e. you’ve got receipts or invoices) 

1. It must not be a private, domestic or capital expense (unless you’re depreciating it) 

Let’s break down what this looks like in practice. 

Common Business Expenses You Can Claim 

Here are some common expenses most businesses can claim: 

✔️ Operating Expenses 

• Rent or lease payments on your business premises 

• Utility bills (electricity, gas, water) for business premises 

• Business insurance (public liability, professional indemnity) 

• Office supplies and stationery 

• Bank fees on business accounts 

• Advertising and marketing costs 

• Subscriptions to business-related publications or software 

✔️ Wages and Super 

• Employee wages, salaries and commissions 

• Superannuation contributions for your employees 

• Fringe Benefits Tax (FBT) on certain perks provided to staff 

• Contractor payments (remember to check if they’re really contractors or employees under ATO rules) 

✔️ Travel and Vehicle Costs 

• Flights, accommodation, meals and incidentals while travelling for business 

• Vehicle expenses – either using the cents-per-kilometre method or actual running costs 

• Parking fees and tolls when attending client meetings or job sites 

Expenses You Can Claim – But Only Partially or With Conditions 

This is where things get trickier. Some expenses are deductible, but only partially or under specific conditions. 

⚠️ Home Office Expenses 

With hybrid and remote work on the rise, home office deductions are a hot topic. You can claim a portion of: 

• Electricity and internet bills 

• Depreciation of office furniture or equipment 

• Phone bills if used for work 

• Cleaning costs of your dedicated office area 

But you must keep detailed records and use one of the ATO’s accepted methods (fixed rate, actual cost or the new revised fixed rate method introduced from 2022-23 onwards). 

Pro tip: You can’t claim rent or mortgage payments unless your home is a place of business, not just a place where you work from home. 

⚠️ Vehicles 

If you use your car for both work and personal purposes, only the business portion is deductible. You’ll need a logbook or use the cents-per-kilometre method (limited to 5,000 km per car, per year). 

Luxury cars and company cars come with extra rules – including fringe benefits tax (FBT) obligations – so it’s worth chatting with your accountant if you're in this boat. 

⚠️ Entertainment and Gifts 

Generally, entertainment – like meals, drinks, and events – is not deductible. However: 

• Light meals during business travel can be claimed 

• Staff Christmas parties held on business premises may be partially deductible and FBT-free 

• Gifts for clients and staff can be deductible if they’re non-entertainment in nature (like gift cards or hampers) 

What You Can't Claim as a Business Expense 

Some things might feel like a business cost – but the ATO won’t let you claim them: 

❌ Personal Expenses 

• Gym memberships (unless you're a personal trainer!) 

• Everyday clothes, even if you wear them to work 

• Fines (e.g. parking or speeding tickets) 

• School or childcare fees 

❌ Capital Assets (Upfront) 

If you buy big-ticket items like a car, laptop, or machinery, you can’t claim the full cost upfront. Instead, you may be able to: 

• Depreciate the item over its effective life, or 

• Use the instant asset write-off if you’re eligible (this threshold changes regularly – keep an eye on ATO updates) 

Keep Records or Miss Out 

The ATO doesn’t accept guesstimates – if you want to claim it, you need to prove it. That means keeping: 

• Receipts or invoices 

• Bank or credit card statements 

• Logbooks for vehicles 

• Calculations for partial use (e.g. home office or shared resources) 

Using accounting software like Xero or MYOB makes this easier, and your accountant can help you set up your chart of accounts to track deductible vs non-deductible spending. 

Final Thoughts: Claim Smart, Not Risky 

Claiming legitimate business expenses helps reduce your tax bill and improve your bottom line – but pushing the boundaries can land you in hot water. If you’re unsure, it’s always better to get advice. 

At Rubiix Business Accountants, we help Australian business owners make sense of their deductions – and we do it with straight talk, not jargon. If you’re asking, “What can I claim as a business expense?” – let’s chat. We’ll help you claim confidently, stay compliant, and focus on growing your business the right way. 
 

Need a second opinion on your business deductions?

Get in touch with the team at Rubiix today – we’re here to help you make smarter tax decisions, year-round.