The ATO has identified particular areas relating to business expenses that are commonly entered incorrectly in tax returns. Owners should take the time to carefully review tax returns to ensure all information is correct.
Individuals who use a motor vehicle entirely for their business can claim a deduction for the whole amount. However, if they use the vehicle for a mix of business and private use, they will need to divide the expense amount and only claim the business portion.
Business expenses must be kept separate from an individual’s private expenses, such as personal rent, fines, travel, food and renovations of a private residence. Those who operate their small business as a company or trust need to be aware that paying private expenses from these accounts may have other tax implications such as fringe benefits tax and shareholder loans.
In the event a business is upgrading its accounting software, remember to check that business and private expense codes are correct. The business expenses must be claimed at the GST exclusive rate if they are registered for GST, not the GST inclusive rate.
The ATO has three golden rules for claiming business expenses:
- The expense must have been for the business, not for private use.
- If the expense is for a mix of business and private use, claims can only be made on the portion that is used for the business.
- Records must be available to prove claims.
Small businesses should note that falsely or incorrectly claiming expenses is not something the ATO takes lightly. Penalties can apply based on the extent of the misinformation.
