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As the tax season approaches, small business owners across Australia are eagerly exploring strategies to optimise their deductions and minimise their tax liability.
This year, several new tax deduction categories have gained prominence, highlighting more than ever the evolving nature of entrepreneurship.
Research conducted by Thriday, a small business accounting platform, has highlighted the evolving face of small business ownership, with more businesses being run from home and new technology like Chat GPT featuring prominently across 2023 tax reporting.
So let's delve into the top six small business tax deductions for 2023, comparing them to previous years and seeing how businesses are spending their hard-earned money.
Home Office Expenses
In the wake of the COVID-19 pandemic, remote work has become the new normal for many small business owners. As a result, the deduction for home office expenses has significantly increased over the last three years. According to Thriday data, 62 per cent of small businesses have been leveraging this deduction to claim a proportion of their rent, utilities and even internet expenses, up by 28 per cent compared to pre-COVID averages.
Self-Education Expenses
Continual learning is crucial for small business owners to stay competitive in today's dynamic business landscape. The deduction for self-education expenses allows entrepreneurs to claim a wide range of professional development courses, conferences, seminars, and subscriptions that enhance their business acumen. This deduction has experienced a 15 per cent increase in utilisation, with over 45 per cent of small businesses investing in their knowledge and skills to drive growth.
Car Mileage
For small business owners who rely on their vehicles for business purposes, the car mileage deduction is a valuable avenue for reducing their taxable income. By tracking and recording their business-related trips, entrepreneurs can claim a set rate per kilometre for the business mileage travelled. Recent data shows that small businesses have increasingly embraced this deduction, with a 22 per cent rise in claims compared to previous years.
Bank Fees
While bank fees may seem small, they can add up over time for small businesses. Fortunately, entrepreneurs can deduct the costs of business bank accounts and credit card transactions, helping them retain more of their hard-earned revenue. With over 58 per cent of small businesses availing themselves of this deduction, it has gained significant popularity in recent years, resulting in a 12 per cent increase in claims.
Income Protection Insurance
In the face of a market downturn, it's no surprise that small business owners are seeking protection against unexpected circumstances such as sickness, injury, or disability that prevents them from working. This deduction has seen a remarkable 30 per cent growth in claims, indicating a growing awareness among entrepreneurs about the importance of safeguarding their income and businesses against unforeseen events.
Technology Expenses
From software subscriptions to hardware purchases, entrepreneurs are claiming a record amount of deductions for technology expenses. With an astonishing 40 per cent surge in claims, small businesses increasingly recognise the need to invest in technology to improve efficiency and productivity, leading to overall growth. New software, especially expenditure on AI-related tools like Chat GPT, has driven this trend in 2023.
Michael Nuciforo, CEO of Thriday, said that tax deduction data is a great way to get a pulse check on the small business sector.
"Small businesses generate over 50 per cent of Australia's GDP. This data shows that more businesses are being run at home, and business owners are leveraging technology more than ever," Michael said.
"As a result, there is a real opportunity for the government to re-think how small businesses are taxed and supported, with better infrastructure and services to cater to these trends."
The analysis, conducted by Thriday on more than 50,000 real-world bank transactions, has shown that trends such as working from home and AI adoption are here to stay.
"We expect to see expenditure in AI technology ramp up over the coming 12 to 24 months, and we anticipate spending on rent and public transport to continue declining as more businesses take advantage of remote working."
Linda Lambrechts
Wine, beer and spirits specialist. Editor SH Magazine
Wine, beer and spirits specialist. Editor SH Magazine
