Ever felt that sinking feeling when looking at your tax bill? Trust me, I’ve been there. After a decade of running ProfitBooks and working with countless Australian business owners, I’ve discovered that most entrepreneurs are leaving money on the table when it comes to tax deductions.
Did you know that 42% of small businesses underclaim digital subscriptions and prepayments? Or that the ATO’s upcoming changes could increase your debt costs by a whopping 88.68% if you’re not prepared?
In this comprehensive guide, I’ll walk you through everything you need to know about ATO tax deductions – not as some theoretical exercise, but from my practical experience helping Australian business owners maximize their returns through our accounting software.
What Is The Australian Taxation Office (ATO)?
ATO Login Portal For Tax Lodging
The Australian Taxation Office (ATO) is like the financial referee for the government in Australia. Its job is to make sure everyone pays their fair share of taxes, which are essential for funding things like hospitals, schools, and public services.
The ATO also helps people understand and follow tax rules. They provide information on how to file your taxes, and what deductions you might be eligible for, and they collect taxes from businesses and individuals.
They’re also responsible for making sure businesses and individuals pay other types of taxes, like the Goods and Services Tax (GST) on things you buy.
If you work, run a business, or earn income in Australia, you’ll likely interact with the ATO in some way. They’re there to make sure the tax system runs smoothly and fairly for everyone.
What are the major business taxes that ATO regulates?
In my conversations with Australian clients, I’ve found that most businesses deal with three main types of taxes:
- Company or income tax – This is the tax on your business profits
- Capital gains tax (CGT) – Applied when you sell assets at a profit
- Goods and Services Tax (GST) – A consumption tax added to most goods and services
While Australia isn’t a ‘tax haven,’ I’ve helped many business owners navigate these taxes efficiently through proper planning and record-keeping. Let’s dive into the deductions that can significantly reduce your tax burden.
ATO Tax Deductions & Lodging You Probably Didn’t Know
1. The Mature Age Worker Tax Offset
I was shocked when I discovered that 37% of small businesses underclaim their digital tool expenses. As a tech enthusiast myself, I know how crucial these tools are for modern businesses.
In the 2014 Federal Budget, they suggested getting rid of the mature age worker tax offset (MAWTO) starting from July 1, 2014. In March 2015, the government passed a law to make this change happen.
They decided to take the money they saved from getting rid of MAWTO and use it for a program called “Restart.” This program, which began on July 1, 2014, gives employers up to $10,000 if they hire someone aged 50 or older who has been on income support for at least six months.
So, instead of giving tax breaks to mature-age workers, they started giving money to employers who hire older job seekers who need a helping hand.
2. Superannuation Fund
If you have a superannuation fund (a savings account for retirement), the government might give you some extra money to help it grow.
To qualify, you need to be living in Australia, earn at least 10% of your money from a job or business, and put some of your own money into your super fund, up to $1,000.
If your total income is less than $31,920, the government will add up to $500 to your super fund to help you save more. But, if you earn more than $31,920 but less than $46,920, they’ll give you a bit less for every extra dollar you earn.
So, the more you make over $31,920, the less extra money you’ll get from the government.
It’s a way to encourage people to save for their retirement, especially if they don’t earn a lot.
3. Tax Deduction under D5-Other work-related fees
Let’s discuss other work-related expenses you can claim on your tax return as an employee. These are costs you haven’t already reported elsewhere in your return.
First, there are union fees and professional association memberships you can deduct.
Then, there are overtime meal expenses, but some conditions apply.
Your employer must provide a legitimate overtime meal allowance as required by your job. You should have bought and eaten a meal during overtime, reported the allowance as income, and if you’re claiming more than $33.25 per meal, keep receipts as proof.
These are additional expenses that might qualify for tax deductions.
4. Donations
Here’s an important tip: If you’ve made a donation of $2 or more to a recognized charity and have a receipt, you can get a tax deduction.
But remember, not all deductions work the same way. To claim a deduction, your donation should go to a Deductible Gift Recipient. Unfortunately, most private donations, like those on GoFundMe campaigns, won’t qualify for a deduction.
5. Property rent expenses
A lot of folks forget to claim some expenses and tax deductions when they own rental properties. The ones people tend to miss out on are:
1. Bank charges
2. Taking care of the garden and lawn
3. Pest control costs
4. Fees for security patrols
5. Money spent on secretarial and bookkeeping services
6. Travel and car expenses related to collecting rent
7. Property inspections and maintenance.
These are the things that often slip through the cracks when it comes to tax deductions for rental properties.
6. Personal protective equipment (PPE)
You can read more about this in ATo’s guide on PPE, where you will get the exact tax rates and how to claim them.
Claiming PPE Deductions at Work:
If you’ve bought personal protective gear (PPE) for your job, you might be able to get a tax deduction for it. But there are some rules to follow.
Expense Ownership:
- You can’t claim a deduction if your boss pays for your PPE.
- If your employer provides the gear or reimburses you for the cost, it’s a no-go.
Conditions for Deduction:
- To claim a deduction, you must need that PPE for your job.
- It should be directly connected to the kind of work you do.
- If your job puts you at risk of getting sick or hurt, and that risk isn’t tiny, you’re on the right track.
- You need to use this protective stuff while doing your job.
Examples of PPE:
Think of things like hard hats, safety glasses, earplugs, gloves, face masks, hand sanitizer, or antibacterial sprays. What you can claim depends on what you do for work.
Remember, these rules are about making sure you’re using the gear for your job, not for your personal life. If you meet the conditions, you might save some money when tax time rolls around!
7. Clothing tax deductions
When it comes to clothing and taxes, things can get a bit tricky. But don’t worry, I’ll break it down for you.
First off, you can claim expenses for certain types of clothing.
This includes protective gear like steel-capped shoes or an art smock that shields you from harm or messy accidents. You can also claim for work-specific clothing, like those checkered pants chefs wear in the kitchen.
Now, about work uniforms: you can only claim them if it has your employer’s logo and are unique to your workplace. It shouldn’t be something just anyone can buy.
But not everything is claimable.
Regular stuff like black pants and a white shirt for waiters doesn’t count. Those are considered normal clothes and won’t get you any tax benefits.
8. Income insurance & protection
Got income protection insurance?
Great news!
If you shelled out some money for it to make sure you still get paid if you can’t work, you can use that expense to lower your taxes. Yep, you can claim the cost of your insurance premium as a tax deduction. So, it’s a win-win! You protect your income and save a bit on your taxes, too!
9. Work-from-home tax deductions
Due to COVID-19, lots of folks are working from home these days. Good news: the ATO has a new deal! From March 1, 2020, to June 30, 2022, you can claim 80 cents per hour for all your work-from-home expenses.
No need to keep piles of receipts or invoices; just show them your timesheets, schedules, or a diary to prove you were working from home. It’s an easy way to get a tax break during these unique times.
10. Home office tax deductions
If you’re working out of your home, you might qualify for tax deductions on things like your home’s running costs, personal computer, software, gear, furniture, lighting, heating, and even a part of your rent or mortgage.
However, if your home serves as your main workplace, you might not receive the full exemption for your primary residence. For more details, check out the ATO website. They’ve got all the info you need!
11. Healthcare expenses
You have the option to request a deduction for qualifying expenses related to disability aids, attendant care, or aged care. To get detailed information about this deduction, visit the ATO website.
12. Travel expenses tax deductions
Entrepreneurs who utilize their vehicles for work-related purposes, excluding their daily commute, typically have the opportunity to deduct expenses such as fuel and upkeep on their taxes.
To qualify, you should own the vehicle, and your travel should be considered part of your workday.
Typical scenarios include traveling between different work locations, making specific trips to the post office or bank, or transitioning from one job site to another.
13. Internet expenses
Another one of the tax deductions is related to your company’s internet use.
If you find yourself working from home and your internet bill is in your name, there’s a good chance you can deduct your internet costs. You can figure this out by estimating how much of your monthly internet usage is for work compared to your overall household usage.
14. Other tax deductions
There are many tax deductions that the ATO gives businesses returns for.
Additional potential work-related costs should have a clear connection to your job as an employee, and you’ll need to demonstrate this connection with supporting evidence, such as receipts. These tax deductions are the most difficult to claim.
- Expenses for your personal computer and internet usage.
- Home telephone and mobile phone bills are inked to work.
- Fees for joining a union or a professional association.
- Subscriptions to professional journals or magazines.
- Costs associated with attending work-related seminars or training courses.
- Money spent on a new briefcase or a bag for your computer.
These potential work-related expenses, when properly documented and connected to your job, can become valuable tax deductions. So, make sure to keep good records, as they might help you save some money when tax time rolls around.
Upcoming Changes to ATO Tax Deductions
Based on my research and conversations with tax professionals, here are key changes to watch for:
| Change | Effective Date | Impact | Action Item |
|---|---|---|---|
| Interest Charge Deductibility Removal | July 1, 2025 | Increases debt costs | Settle ATO debts pre-July 2025 |
| Home Office Rate Revision | July 1, 2026 | New 67¢/hour rate with stricter requirements | Implement time-tracking systems |
| Crypto Transaction Reporting | Jan 1, 2026 | Mandatory disclosure of >$10k transactions | Segregate trading/investment wallets |
Note: I’m particularly concerned about the crypto reporting requirements, as many of my tech-savvy clients are involved in this space. I’ve been advising them to start organizing their transaction records now to avoid headaches later.
Brief On How Tax Deductions Work
You have the opportunity to list certain costs on your tax return and get a break on them.
Most of these costs should be linked to making money, but there are a couple, like donations, that don’t need to be money-makers.
When you claim these deductions, they lower the amount of income you’re taxed on.
Here’s how it plays out:
- You start with your assessable income, which is what you make from work or investments.
- Then, you subtract your allowable deductions, like the expenses you had to earn that income.
- What’s left is your taxable income, and that’s the amount you’ll pay taxes on.
So, in a nutshell, tax deductions are a way to reduce the chunk of your income that’s subject to taxes. It’s like giving your hard-earned money a little extra protection in your pocket.
Frequently Asked Questions
Based on the questions I frequently receive from Australian business owners:
- Can I claim Netflix or Spotify subscriptions?
A: Only if they’re directly used for work (e.g., media research). Personal use voids the deduction. I had a client in marketing who successfully claimed 70% of streaming services as they monitored ad placements.
- Are business meals deductible?
A: Yes, if discussing business. Claim 50% under “business meals.” Keep notes about who attended and what was discussed – I use ProfitBooks’ receipt scanning feature to attach these details directly to expenses.
- How do I prove my home office internet use?
A: Use apps like RescueTime to track work-related activity or keep detailed logs. Most clients I work with can reasonably claim 45-50% of internet costs when working primarily from home.
- Can I claim a gaming PC if I use it for work?
A: Only if used >50% for business purposes (e.g., graphic design, video editing). You’ll need detailed usage logs. I’ve seen too many audits triggered by unreasonable computer claims.
- Are startup costs deductible?
A: Yes, but typically spread over five years. These include market research, legal fees, and business registration costs. I started ProfitBooks on a tight budget, so I carefully tracked and deducted every eligible startup expense.
- Can I claim property rent expenses for my home office?
A: Yes, but it’s complex. You can claim a portion based on the dedicated workspace area and hours used. Be careful, though – this may affect your capital gains tax exemption when selling your home.
- What clothing expenses can I deduct?
A: You can claim occupation-specific clothing (chef’s pants), protective wear (hard hats), and branded uniforms. Regular business attire isn’t deductible even if your employer requires it.
- How will the July 2025 changes affect interest charge deductions?
A: From July 1, 2025, you can no longer claim tax deductions for ATO interest charges. For a business with a $10,000 GIC charge in the top tax bracket, this means paying about $4,500 more (effectively increasing the cost from 11.15% to 19.56%).
- What are the differences between tax deductions and tax offsets?
A: Deductions reduce your taxable income before tax is calculated, while offsets directly reduce the tax payable. Dollar for dollar, offsets are usually more valuable.
- What records do I need to keep and for how long?
A: Keep all tax-related documents for five years from the date you lodge your return. For depreciating assets, maintain records for the entire depreciation period. I recommend cloud storage solutions like those built into ProfitBooks to ensure that nothing gets lost.
Conclusion: Optimizing Your Tax Position
After a decade of helping Australian businesses manage their finances through ProfitBooks, I’ve seen how proper tax planning can transform a business’s cash flow.
Understanding ATO tax deductions isn’t just about compliance. It’s about strategically positioning your business for financial success.
The businesses that thrive are those that view tax management as an ongoing process rather than a once-yearly scramble.
By implementing proper record-keeping systems, staying informed about regulatory changes, and applying the strategies I’ve outlined, you can significantly reduce your tax burden while remaining fully compliant.
I built ProfitBooks specifically to address these challenges for small business owners. Our system automatically categorizes expenses, tracks GST, and generates tax-ready reports – saving you time and maximizing your deductions.
Want to take control of your tax deductions and stop leaving money on the table?
Get your 100% FREE ProfitBooks account now and start managing your business finances like a pro.
Our Startup plan is perfect for solo entrepreneurs, and the accounting software is completely free to use because I believe every business deserves access to professional-grade financial tools.
Also Read:
What Taxes Do Small Businesses Pay In Australia?
