Nudge Moments: Is the money I spend on my start-up a tax deduction?

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Every second month Emma from Nudge Accounting answers a finance question (via Vlog or Blog) asked by a member of Microsoft Bizspark or the startup community. This month, she answers the question of tax deductions available for startups.

#Nudgemoments StartUp Question: I’m spending a lot of money on my start-up. I’m not sure what I can claim for tax? Please help!

Emma’s Response

Many of the expenses which you incur in operating your startup can be claimed as a tax deduction. These expenses can generally be broken down into four categories:

1. Running expenses

These are the expenses you incur in the day to day running of your startup. Some common running expenses include:

  • Advertising and marketing costs
  • Materials and stock – however, in most cases you can only claim the stock which is actually used. You cannot claim a deduction for stock which is still on hand.
  • Stationery and office expenses
  • Bank Fees and interest
  • Travel (excluding any portion of travel which is private)
  • Conference and training attendance
  • Office rent
  • Accounting fees
  • Insurances
  • Telephone and internet use

2. Equipment and other asset expenses

If your startup buys equipment (such as computers) or other asset purchases (such as office furniture), these are generally not immediately deductible. Instead, they are deducted over a number of years. However, as part of the small business concessions, if any of these purchases are less than $1,000 they can be immediately expensed.

3. Employee expenses

The wages you pay your staff are tax deductible, as too are other costs related to their employment and hire. These include; superannuation, commissions and bonuses, insurances, training and recruitment fees. One thing to be careful with here is that gifts and other  entertainment provided to employees are subject to different rules, and in many cases aren’t tax deductible.

4. ‘Blackhole’ Expenses

Certain costs you incur in establishing your startup, such as legal fees, borrowing costs and incorporation costs are deductible, however not immediately. They form part of what the ATO terms blackhole expenditure, and can be deducted over five years.

Remember this list is not exhaustive, and there are many other expenses which both are and aren’t deductible. Always make sure you keep good records – the ATO will require copies of receipts/invoices as proof to substantiate your deduction.  If you are
unsure of whether something is deductible, never throw your receipt out, but have a chat with your accountant.

Emma Petroulas is Client Happiness Director at Nudge Accounting . She also lectures in Small Business Accounting at the University of Technology, Sydney.

To have Emma answer your finance question next month, post a comment here or tweet using #Nudgemoments.

Disclosure: This article is not intended to replace in any way professional accounting advice