What business expenses are tax-deductible?

January 11, 2026
Tax & Compliance
This is one of the first questions business owners ask, and one of the easiest areas to get wrong. Most people know that business expenses can reduce tax, but the rules around what is deductible are not always as simple as they seem.
As accountants working with businesses across Port Stephens and Nelson Bay, we often see two extremes. Some business owners are overly cautious and miss deductions they are entitled to. Others assume almost everything can be claimed and end up with problems later.
The aim of this guide is to explain business deductions in plain language. It is not about pushing boundaries. It is about understanding what the ATO allows, why it allows it, and how to keep your records in good shape.

The basic rule for tax-deductible expenses

At its simplest, a business expense is tax-deductible if it meets three key conditions:
  • It is directly related to earning income from your business.
  • It is not a private or domestic expense.
  • You have records to support the claim.
If an expense is partly business and partly private, only the business portion is deductible.
This rule applies whether you are a sole trader, a company or a partnership. It is the foundation of small-business accounting in Port Stephens and across Australia.

Common business expenses that are usually deductible

Most businesses share a core group of deductible expenses. These are the items accountants near me are asked about most often.

Operating costs

Everyday costs of running your business are generally deductible. This includes:
  • Office rent or workspace costs
  • Electricity, water and internet
  • Phone expenses used for business
  • Business insurance premiums
  • Accounting and bookkeeping fees
If the cost exists because the business exists, it is usually deductible.

Motor vehicle and travel expenses

Vehicle expenses are common and are among the most closely reviewed by the ATO.
You can generally claim:
  • Fuel used for business travel
  • Repairs and maintenance
  • Registration and insurance
  • Lease or depreciation costs
You cannot claim travel between home and work in most cases. This is considered private.
If you use your vehicle for both business and private purposes, only the business portion is deductible. This is where accurate records matter.

Home office expenses

Many small business owners work from home, either full-time or part-time.
Home office deductions can include:
  • A portion of electricity and the internet
  • Office furniture and equipment
  • Phone expenses related to business use
You usually cannot claim rent or mortgage interest unless part of your home is used exclusively for business. This is an area where advice from a Nelson Bay tax agent is important, as there can be capital gains implications.

Wages, super and contractor payments

If you employ staff, the following are generally deductible:
  • Employee wages
  • Superannuation contributions
  • Payroll tax, where applicable
  • Workers compensation insurance
Payments to contractors are also deductible, provided the arrangement is genuine and properly documented.
Accurate payroll records are essential. Mistakes in this area often lead to compliance issues.

Advertising and marketing costs

Money spent promoting your business is usually deductible.
This includes:
  • Online advertising
  • Website costs
  • Printing and signage
  • Sponsorships are directly linked to promotion.
If the purpose is to generate business income, it generally qualifies.

Professional fees and advice

Fees paid to professionals are usually deductible, including:
  • Accounting and tax advice
  • Legal fees related to business matters
  • Business advisory services
This is one reason many businesses see value in regular contact with expert accountants in Port Stephens and Nelson Bay.

Equipment and asset purchases

Larger purchases are treated differently from everyday expenses.
Items like:
  • Computers
  • Tools
  • Machinery
  • Office furniture
may need to be depreciated over time rather than claimed in a single upfront amount. In some cases, instant asset write-off rules may apply, depending on the year and eligibility.
This is an area where timing matters. Pre-purchase advice can make a real difference.

Training and education expenses

Training costs are deductible if they relate directly to your current business activities.
This includes:
  • Industry courses
  • Skills training
  • Conferences related to your work
Training that prepares you for a new business or career is generally not deductible.

Interest and finance costs

Interest on business loans is usually deductible.
This includes:
  • Business loans
  • Equipment finance
  • Overdraft interest
If a loan is partly private, only the business portion of interest can be claimed.

Expenses that are partly deductible

Some expenses have both business and private components.
Common examples include:
  • Phone plans
  • Internet services
  • Motor vehicles
  • Home office expenses
Only the business portion can be claimed. This is where bookkeeping services in Nelson Bay play an important role in tracking usage and maintaining evidence.

Expenses that are not deductible

Some costs are clearly not deductible, even if they feel business-related.
These include:
  • Private living expenses
  • Fines and penalties
  • Income tax payments
  • Personal entertainment
  • School fees and childcare
Understanding what cannot be claimed is just as important as knowing what can.

Record keeping and evidence

You cannot claim a deduction without records.
The ATO expects you to keep:
  • Receipts
  • Invoices
  • Bank statements
  • Logbooks were required
Digital records are acceptable, but they must be clear and complete.
Good record keeping makes BAS lodgement help easier and reduces stress if the ATO asks questions.

GST and deductible expenses

If you are registered for GST, deductions and GST credits are separate concepts.
You may be able to:
  • Claim the business expense for income tax.
  • Claim the GST credit separately.
This depends on the type of expense and your GST registration.
Understanding this distinction avoids errors and overclaims.

Business structure matters

Your business structure affects how deductions work.
For example:
  • Companies have different rules around private use.
  • Trusts require careful allocation of expenses.
  • Sole traders must clearly separate personal and business spending.
This is why business advisory in Nelson Bay often includes regular structure reviews.

SMSFs and business expenses

SMSF accounting in Port Stephens is subject to strict rules. SMSFs can only claim expenses directly related to running the fund.
Business expenses cannot be shifted into an SMSF. This is an area where mistakes can be costly.

Common mistakes we see

Some of the most common issues we see include:
  • Claiming private expenses
  • Poor record keeping
  • Overlooking small but valid deductions
  • Not adjusting for private use.
  • Claiming expenses in the wrong year
These mistakes are usually unintentional, but they can still cause problems.

How regular reviews help

Regularly reviewing expenses helps ensure claims are accurate.
Quarterly or monthly reviews allow you to:
  • Catch errors early
  • Adjust spending habits
  • Plan tax payments
  • Stay compliant
This approach is common among local accountants in Port Stephens who work closely with small businesses.

Frequently Asked Questions

Can I claim clothes as a business expense?
Only if the clothing is protective or a required uniform. Everyday clothing is not deductible.
Can I claim meals and entertainment?
Meals while travelling for work may be deductible. Entertainment is usually not.
What about working from home?
You can usually claim a portion of business-related expenses.
Do I need receipts for everything?
Yes. Records are required to support claims.
Can I claim a laptop or phone?
Yes, but larger items may need to be depreciated.
What if an expense is partly private?
Only the business portion can be claimed.
Can my bookkeeper help with deductions?
Bookkeepers help record expenses. Accountants provide advice on what is deductible.
When should I ask for advice?
Before spending large amounts or making changes. This often leads to better outcomes.

Final thoughts

Understanding what business expenses are tax-deductible is not about stretching the rules. It is about knowing them well enough to claim what you are entitled to and avoid problems later.
Clear records, regular review and honest advice make the process far easier. For many business owners, working with expert accountants in Port Stephens and Nelson Bay turns tax deductions from a source of confusion into a manageable part of running a healthy business.
If you are unsure whether an expense is deductible, asking the question early is always the best approach.
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