The general standard for deducting a business expense is that it must be ordinary and necessary for your trade or business. Ordinary means common and accepted in your line of work. Necessary means helpful and appropriate — not indispensable.
Most disagreements are not about the rule. They are about whether an expense was genuinely for the business, and whether you can show it.
Categories that are usually straightforward
- Wages and contractor payments
- Rent for business premises
- Supplies and materials
- Business insurance
- Professional fees — accounting, legal, consulting
- Software and subscriptions used for the business
- Marketing and advertising
- Bank and merchant processing fees
- Business interest, subject to limits
- Professional development related to your current work
For these, the question is rarely whether the category qualifies. It is whether the specific spend was business use, and whether it is recorded properly.
Categories with extra rules
Meals
Business meals are generally deductible at a limited percentage rather than in full, and there are conditions about business purpose and who was present. The percentage has moved in recent years, including a temporary change that has since ended, so confirm the current treatment rather than relying on what was true a few years ago.
Entertainment
Entertainment expenses are generally not deductible under current rules, which surprises people who remember it differently. A meal associated with an entertainment event may be treated separately if it is separately stated.
Vehicle use
You can generally use either a standard mileage rate or actual expenses, with rules about which you can choose and when you can switch. Either way, personal use is not deductible, and you need a contemporaneous record of business mileage. Reconstructing a year of driving from memory is not a record.
Home office
A home office deduction requires a space used regularly and exclusively for business, and eligibility differs depending on whether you are self-employed or an employee. Exclusive use is the part that most often fails — a dining table does not qualify because you work at it.
Travel
Travel away from your tax home for business can be deductible, but trips that mix business and personal time require allocation, and the business purpose has to be genuine and documented.
Equipment and larger purchases
Significant purchases may be capitalised and depreciated over time rather than deducted at once, though provisions exist that can allow faster treatment for qualifying property. Which applies depends on the asset, the amount and the year, and this area changes often.
What is not deductible
- Personal, living and family expenses
- Most commuting between home and a regular workplace
- Fines and penalties paid to a government
- Political contributions
- Expenses you cannot substantiate
The part that actually decides outcomes
Documentation. A legitimate business expense with no supporting record is a weak position, and an aggressive one with excellent records is at least a defensible one.
- Keep a separate business bank account and card — this single habit removes most of the ambiguity
- Retain receipts and note the business purpose while you still remember it
- Track mileage as you drive, not in April
- Categorise consistently so year-on-year comparisons mean something
One thing worth repeating
A deduction reduces taxable income; it does not refund the money you spent. Buying something you did not need in order to reduce tax still leaves you worse off in cash. The purchases worth accelerating are the ones you were going to make anyway.