We’re now well into the second half of the financial year. In preparation for tax time, you might be thinking about your business expenses and what deductions you can claim. As a business owner, it’s wise to have some understanding of deduction rules to reduce your tax. You’re allowed to claim deductions for most expenses that you incur in the operation of your business to earn an assessable income. These expenses may have been paid for already, or they may be accrued expenses.
What are accrued expenses?
Accrued expenses are those expenses that have been incurred but not yet paid for. Common examples of accrued expenses include:
- Wages and salary – your employees have worked but not been paid by 30 June. This can be claimed as a deduction in the current financial year.
- Commissions – your business may owe contractors and other businesses for their services provided up to 30 June. The accrued amount can be claimed in the current financial year.
- Staff bonuses.
- Business utility bills – this can be an accrued expense when the period of the bill extend beyond 30 June.
- Repairs and maintenance expenses – these can include fixing machinery and maintaining the premises that are used to generate income.
- Accrued marketing and advertising expenses.
- Accrued loan interest.
In general, you’re allowed to claim deductions for those expenses which are related to earning an income, so expenses of a capital nature do not qualify. Capital expenses may be claimed under other methods such as depreciation or capital works deduction. In addition, expenses are not tax deductible if they were incurred to earn non-assessable income.
It’s imperative that you maintain good records and keep all relevant documentation as evidence that your business has incurred an expense.
Claiming deductions for accrued expenses is one way reduce your taxable income. Contact Moiler to discuss how you can maximise your deductions from accrued expenses and other tax saving strategies.
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This document has been prepared by Moiler Partners, an Authorised Representative of Count Financial Limited ABN 19 001 974 625; AFSL 227232 (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and is for general information only. The presentation has been prepared without taking into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for your needs and consider talking to a Count Authorised Representative before making any investment decision. The relevant PDS should be considered before making a decision about any financial product. The information is provided as an information service only and does not constitute financial product advice and should not be relied upon as financial product advice. 27 August 2018.