Owners tend to struggle with the same things: personal and business spending mixed together, missing receipts, GST, capital purchases and rules that keep changing. The ATO estimates the 2022-23 small business income tax gap at 17.4%, or $27.2bn, and ATO gap research links poor record keeping to errors. This guide covers worksheet columns, categories, the calculation process, evidence and when to call an adviser.
Key Takeaways
- Record date, supplier, category, amount, GST, business-use percentage and evidence for every expense.
- Test each cost against earning assessable income, then separate private, capital and stock items.
- Check current ATO rules before claiming vehicles, home costs, depreciation or write-offs.
- Reconcile the worksheet to your ledger, BAS and bank statements.
What an Australian Small Business Tax Deductions Worksheet Should Capture
Worksheet columns to include
The ATO doesn't prescribe a form, so build one that works. Suggested columns:
- Transaction date and supplier
- Expense description and business category
- Payment account
- Gross amount and GST credit (if entitled)
- Business-use percentage
- Deductible amount
- Classification: operating, capital or prepayment
- Receipt or invoice reference
- Review notes for items needing apportionment, depreciation, stock treatment or adviser confirmation
The Australian eligibility test
Under ITAA 1997 s8-1, you can deduct outgoings incurred in earning assessable income or carrying on a business. Capital, private and domestic costs are excluded from this general deduction, though capital items may qualify under other provisions.
An expense is generally incurred when a legal obligation to pay arises, not only when cash leaves your account.
For mixed-use costs such as a mobile, internet, vehicle or home workspace, keep the working that supports your business-use percentage. Write one line explaining the business purpose and how you arrived at the figure.
Separate tax treatments before calculating the claim
Flag each row as one of these before totalling anything:
- Ordinary operating expense
- Capital asset
- Trading stock or cost of goods sold
- Finance cost
- Item claimed through another mechanism, such as depreciation or capital works
A category name alone doesn't decide deductibility or timing.
Common Australian Small Business Deduction Categories to Review
Everyday operating expenses
Common operating costs the ATO lists include:
- Rent, electricity and water
- Advertising, insurance and telecommunications
- Bank fees, statutory fees and professional subscriptions
- Relevant education and software subscriptions
One ATO example has a salon deducting its monthly SaaS fee. Building a website or in-house software can be capital instead. Repairs are deductible only where they aren't capital in nature.
Employees, contractors and professional development
Employee wages and qualifying super are generally deductible. From 1 July 2026, Payday Super normally requires contributions to reach the fund within 7 business days, and the 2026-27 rate is 12%.
Check classification by looking at the whole arrangement, not the label. Control, tools and commercial risk matter. Some industries, including building, cleaning, courier, IT and security, also trigger a TPAR due 28 August.
Sole traders can't deduct a salary paid to themselves. Partner "salary" is a profit allocation. Don't code drawings as wages.
Motor vehicles, travel, meals and home-based business costs
- Cents per km: 91c/km for 2026-27, capped at 5,000 business km per car, available to sole traders and individual partners
- Logbook: at least 12 continuous weeks, generally valid for 5 years
- Companies and trusts: use actual business costs, not these two methods
- Home running costs: the latest listed fixed rate is 70c/hour for 2024-25 and 2025-26; confirm the 2026-27 rate with the ATO before claiming
Business travel can include transport, accommodation and meals when the business requires an overnight stay. Exclude holiday days and family costs. Entertainment is generally excluded. Commuting is private.
Stock, finance costs and bad debts
Purchases for resale belong in trading stock, not operating expenses. A simplified option applies where the stock-value movement is estimated at $5,000 or less.
Business-loan interest depends on income-producing use; principal repayments aren't deductible. Borrowing costs are generally spread over the loan term or 5 years, whichever is shorter.
A bad debt must have been assessable income, be genuinely bad and be written off before year-end.
Assets, depreciation and startup costs
The $20,000 instant asset write-off is permanent from 1 July 2026 for businesses with aggregated turnover under $10m. The asset must cost less than $20,000, per asset. Assets at $20,000 or more can generally go into the small business pool at 15% in year one, then 30%.
Eligible startup costs can be deducted at 20% a year over 5 years. Some, such as qualifying advice on a proposed business, are immediately deductible. Capital works attract 2.5% or 4%.
How to Complete and Review the Worksheet
Set the reporting period and gather source records
The financial year runs 1 July to 30 June. Pull together:
- Accounting reports and bank and card statements
- Invoices, receipts and contracts
- Payroll records
- Asset and inventory registers
- Vehicle logbooks
- Home-office calculations
Record GST consistently
Deduct the purchase cost net of any GST credits you are entitled to. Where you can't claim a credit, include GST in the deductible cost.
Keep these rules straight:
- Wages carry no GST
- Claim the credit on the BAS and the deduction net of it, never both
- Tax invoices are generally needed for credits on purchases over $82.50
- Purchases of $1,000 or more need a tax invoice that identifies the buyer or ABN
GST accounting (cash or non-cash) and income-tax accounting are separate, so payment date alone doesn't settle every deduction.
Apply the business-use percentage
- Record the total cost.
- Set a reasonable, evidence-based business percentage.
- Record only that share as the potential deduction.
A $1,200 internet bill used 60% for business gives a $720 potential deduction (after considering GST credits).
Review capital, inventory and special-treatment flags
Pause before claiming items that may need special treatment:
- Large equipment and improvements
- Stock
- Prepaid costs
- Finance costs
- Bad debts
- Start-up expenses
Decide whether each is immediately deductible, depreciable, part of cost of goods sold or deductible over time.
Eligible small businesses choosing the concession can immediately deduct prepayments where the service period is 12 months or less and ends in the next income year.
Reconcile and transfer totals
Total each category, tie it to the ledger and bank records, remove duplicates and document adjustments. Then transfer reviewed totals to the return for your structure.
Documentation and ATO Record-Keeping Practices
Evidence required for common expense types
- Tax invoices and receipts
- Bank and merchant-facility statements
- Contracts and licence documents
- Logbooks and travel records
- Payroll reports
- Asset and stock acquisition, repair and disposal records
- Mixed-use calculations
The $300 work-related exception isn't a blanket business receipt waiver. The ATO's small-expense exception covers items of $10 or less, totalling $200 or less, with a substitute record.
Build a repeatable digital process
- Photograph or scan receipts promptly
- Name files consistently and link each to a worksheet row
- Reconcile monthly
- Keep most records for 5 years, and longer where required
Clear digital copies are accepted. Entering figures into software doesn't replace source records.
Keep BAS, bookkeeping and income-tax records aligned
A worksheet supports your accounting records; it doesn't replace them. GST on your BAS, payroll, financial statements and the annual return should all reconcile. When those records sit in different places, VJM Global's outsourced accounting, tax compliance and payroll services help Australian businesses keep them aligned.
Common Mistakes and When to Seek Professional Help
Private expenses and unsupported apportionment
Don't claim personal spending, commuting, owner drawings or private portions of mixed-use costs. Write down the calculation for every apportionment.
Double counting and incorrect classification
- Stock claimed in cost of goods sold and as an operating expense
- Capital improvements treated as repairs
- Recoverable GST included in the deduction
- Home costs claimed separately while also using the fixed rate
- Depreciable assets booked as supplies
These classification errors can trigger shortfall penalties. Rates start at 25% for lack of reasonable care, 50% for recklessness and 75% for intentional disregard. Showing reasonable care usually avoids them.
Outdated rules and complex business circumstances
Get a registered tax or BAS agent to review if you have:
- Employees or multiple entities
- International transactions
- Significant assets or home-based operations
- Large private-use components
- Unclear write-off treatment
Check current ATO guidance before lodging.
Frequently Asked Questions
What tax deductions can I claim as a small business in Australia?
Common claims include operating costs, wages and super, contractor payments, vehicle and home office costs, professional fees, insurance, stock, interest and eligible assets. Each claim needs a clear business purpose and must meet current ATO rules.
What expenses can I write off for my small business?
Write-offs must relate to earning business income. Exclude private costs, and apportion capital or mixed-use items. A write-off reduces taxable income, not the purchase price.
Is there a free template for a small business tax spreadsheet?
Build one from the columns above in any spreadsheet. The ATO's free myDeductions tool suits sole traders, but not company, partnership or trust returns. No template replaces professional advice.
How should I record GST in a small business tax deductions worksheet?
Record the gross cost and the entitled GST credit separately, and deduct the cost net of credits. Report credits on your BAS, and confirm exceptions with the ATO or an adviser.
What records do I need to support small business tax deductions in Australia?
Keep invoices, receipts, bank statements, contracts, asset registers, logbooks, payroll records, stock records and your business-use calculations. Retain most for 5 years.
