Business Expenses & Tax Deductions Australia 2025: What You Need to Know

Running a business in Australia means keeping a close eye on costs—and making sure you’re not paying more tax than you need to. Knowing which expenses are tax deductible can make a big difference to your bottom line. With the Australian Taxation Office (ATO) introducing fresh guidance and compliance measures for 2025, it’s more important than ever to stay informed. Let’s break down what counts as a business expense, which costs you can claim, and how to avoid common pitfalls this tax year.

What Are Business Expenses? The Basics

Business expenses are the costs you incur in the ordinary course of running your business. From rent and utilities to marketing and travel, these outgoings can quickly add up. But not every dollar you spend is treated equally by the ATO.

• Ordinary Expenses: These are necessary, everyday costs essential for your business to operate (think office rent, internet bills, insurance).

• Capital Expenses: Larger, one-off purchases or investments in assets (like machinery, vehicles, or fit-outs). These are typically depreciated over time, not claimed all at once.

• Private Expenses: Costs for personal use are never deductible—even if paid from a business account.

The golden rule: The expense must be directly related to earning your business income.

What’s Tax Deductible in 2025?

The ATO’s rules on deductions evolve, and 2025 is no exception. This year, there’s renewed focus on substantiation and digital recordkeeping. Here’s what you can generally claim:

• Operating Expenses: Rent, utilities, phone/internet, office supplies, insurance, and wages.

• Professional Fees: Accounting, legal, and consulting costs related to your business activities.

• Vehicle & Travel: If you use your car for business, you can claim a portion of costs. Business travel (flights, accommodation, meals) is deductible if directly related to work.

• Marketing & Advertising: Website costs, social media ads, print advertising, and sponsorships all count.

• Depreciation: For assets like laptops or equipment over $300, you can claim depreciation using simplified methods or the instant asset write-off, subject to 2025 thresholds.

2025 Update: The instant asset write-off threshold for small businesses remains at $20,000 per asset, but eligibility criteria have tightened. Digital recordkeeping is now mandatory for deductions over $2,000, so make sure your software is up to date.

Common Mistakes and Red Flags

The ATO has flagged several areas for extra scrutiny in 2025:

• Mixing Business and Personal Expenses: Claiming costs that have a private component (like home internet or mobile) without apportioning correctly can trigger audits.

• Unsubstantiated Deductions: You must keep receipts and proper records for five years. Digital-only records are now accepted, but must be clear and accessible.

• Incorrect Asset Claims: Instant asset write-off is only for eligible businesses and assets. Double-check the ATO’s latest list before claiming.

• Entertainment Expenses: Client lunches and staff parties are mostly non-deductible, with strict exceptions.

Real-world example: A Melbourne café owner tried claiming 100% of their home internet as a business expense, but only 60% was actually used for business. After an ATO review, their deduction was reduced, and penalties applied.

Smart Strategies for 2025 and Beyond

To maximise your deductions and stay compliant:

• Digitise Receipts: Use an app or accounting software to snap and store receipts as you go.

• Apportion Mixed-Use Costs: For expenses like cars, phones, or utilities, calculate the percentage used for business and only claim that portion.

• Stay Informed: The ATO updates thresholds and rules each year—subscribe to their alerts or check for changes before tax time.

• Plan Major Purchases: If you’re considering buying equipment, check whether it fits the instant asset write-off rules this year.

Remember, claiming what you’re entitled to—no more, no less—means a healthier business and peace of mind if the ATO comes calling.