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Company Tax Return – Acceptable Deductions

It is your duty to lodge an annual company tax return showing your taxable income and the amount of tax due on that income when operating your business as a company.

Limitations of deductions

Taxable income is computed by deducting certain expenses (also referred to as allowed deductions) from your assessable income. For these expenses to be deductible, they must must not exceed maximum amounts set by tax laws and be specifically related to assessable income.

Accrual and cash methods

Generally, you can claim most expenses incurred in the daily operations of your business in the year they are incurred. This accounting method is known as the accrual method. But if your business is using the cash (or receipts) accounting method, you can claim the deductions in the year you actually pay for these expenses, rather than in the year these expenses were incurred.

Types of deductions

Before claiming an expense as a deduction, you need to determine whether it falls under any of the following:

• Deductions you can claim in the income year you incur them;
• deductions you can never claim; or
• deductions you can claim over a number of years.

Common business deductions

The following expenses are considered directly related to your business and may be deducted from your assessable income:

1. Advertising expenses to sell trading stock, hire employees or gain publicity for your business name.
2. Fringe benefits provided to an employee including the corresponding fringe benefits tax you pay.
3. Properly documented, business travel expenses.
4. Motor vehicle expenses.
5. If you run your business entirely or partly from home, expenses such as rent, mortgage interest rates, land taxes and house insurance premiums, phone rental and business calls, Internet fees, depreciation of office furniture and equipment and other utility expenses which are related to your home work area.
6. Equipment and plant depreciation expense.
7. Expenses related to phones.
8. Wages and salary.
9. Super contributions you make for yourself and for your employees to a complying super fund or retirement savings account.
10. Repairs.
11. Tax-related expenses for bookkeeping, assessment objections and appeals, attendance at an Australian Tax Office (ATO) audit and tax return preparation.

Some expenses that are not allowed to be claimed in your company tax return are:

1. Private or domestic expenses such as your family expenses.
2. Expenses that are specifically non-deductible under tax laws such as parking fines.
3. Expenses relating to income that is not taxable such as money you earn from a hobby.

You should also be aware of special deductions that may be used to reduce assessable income in your company tax return, especially if you operate a research and development company or are a primary producer.

Small Business Tax Credits in 2010, 2011

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