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Running a small business in Australia comes with many financial responsibilities, and income tax can be one of the most significant costs. However, with strategic planning, you can legally reduce your business tax bill and maximise your savings. In this guide, we’ll explore seven effective ways to minimise your tax burden and ensure compliance with the Australian Taxation Office (ATO).
Maintaining detailed financial records is crucial for tax efficiency. The ATO requires businesses to keep records of income, expenses, and other financial transactions for at least five years. Accurate financial records are essential for preparing a tax return.
Use accounting software like Xero, MYOB, or QuickBooks to track expenses.
Keep digital copies of receipts to streamline tax reporting.
Separate business and personal finances to avoid confusion.
Regularly reconcile accounts to prevent errors that could trigger an audit.
Small business owners can reduce assessable income by claiming legitimate deductions. Understanding what expenses are deductible ensures you don’t miss out on potential tax savings.
Operating Expenses: Rent, utilities, office supplies, and phone bills.
Work-Related Travel: Flights, accommodation, and meals (if related to business activities).
Vehicle Costs: Depreciation, fuel, and maintenance for work-related use.
Marketing & Advertising: Website costs, digital ads, and branding expenses.
Professional Services: Accounting, legal, and consulting fees.
Ensure you keep invoices and receipts to substantiate all claims.
The Australian Government offers instant asset write-offs, allowing businesses to deduct the full cost of eligible business assets immediately instead of depreciating them over time.
As of 2025, businesses with an annual turnover below $10 million can claim an instant write-off for purchases under the threshold set by the government.
Assets such as vehicles, machinery, and office equipment may qualify.
Check with your accountant to confirm eligibility and maximise your tax savings.
Contributing to superannuation is not only a smart retirement strategy but also an effective way for a business owner to reduce their business tax bill.
Employer super contributions are tax-deductible.
Business owners can contribute to their own super fund and claim tax deductions.
Contributions up to the concessional cap ($30,000 as of 2025) are taxed at a lower rate (15%) instead of your marginal tax rate.
Be sure to make contributions before the end of the financial year to claim deductions.
Choosing the right business structure can significantly impact your tax obligations. The most common structures include:
Sole Trader: Simple to set up and operate, but the owner is personally liable for all debts and obligations.
Partnership: Involves two or more people who share profits, losses, and liabilities.
Company: A separate legal entity that offers limited liability to its shareholders but comes with more regulatory requirements.
Trust: A structure where a trustee holds property or income for the benefit of others, known as beneficiaries.
Business Structures & Tax Implications:
Sole traders and partnerships are taxed at individual income tax rates, while companies are taxed at the corporate tax rate.
Trusts can be tax-effective but require careful management to comply with tax laws.
Fringe Benefits Tax (FBT): When providing non-monetary perks to employees, such as company cars and entertainment tickets, businesses must consider FBT. Certain exemptions, like the work-related portable electronic device exemption, allow employers to provide specific devices without incurring FBT, offering tax benefits for businesses.
Capital Gains Tax (CGT) can be a significant burden for business owners who sell assets, such as property or shares, for a profit. However, there are strategies to minimize CGT and reduce your tax liability.
1. Hold Assets for at Least 12 Months
If you hold an asset for at least 12 months, you may be eligible for a 50% discount on the capital gain. This can significantly reduce the amount of CGT you need to pay.
2. Use the CGT Exemption
If you sell your primary residence, you may be exempt from paying CGT. This exemption can provide substantial tax savings.
3. Offset Capital Losses
If you have made a capital loss on another asset, you can use it to offset the capital gain on the asset you are selling. This can help lower your overall tax liability.
4. Consider a CGT Rollover
If you sell an asset and use the proceeds to purchase a replacement asset, you may be eligible for a CGT rollover. This can defer the payment of CGT, providing you with more flexibility in managing your finances.
By implementing these strategies, you can minimise your CGT liability and reduce your tax bill.
Bringing forward deductible expenses can help reduce your taxable income for the financial year.
Rent and lease payments
Business insurance premiums
Subscriptions and memberships
Supplier invoices
By prepaying these expenses before June 30, you can claim them in the current financial year.
Identify and Leverage Tax Offsets: A professional accountant can help identify various tax offsets available to you, such as the small business income tax offset and concessions for investors in Early Stage Investment Companies (ESIC). By leveraging these offsets, you can significantly reduce your taxable income and lower your overall tax liabilities.
Identifies opportunities to reduce taxable income.
Ensures compliance with changing tax laws.
Provides insights into cash flow and financial forecasting.
Helps avoid penalties by meeting ATO deadlines.
A professional accountant can also guide you through tax-effective investment strategies and growth planning.
Making charitable donations can not only benefit your community but also reduce your taxable income. By donating to a registered charity, you can claim a tax deduction, which can reduce your tax bill.
1. Claim a Tax Deduction
You can claim a tax deduction for the amount you donate to a registered charity. This can directly reduce your taxable income.
2. Reduce Your Taxable Income
By claiming a tax deduction, you can lower your taxable income, which can subsequently reduce the amount of tax you need to pay.
3. Increase Your Tax Refund
If you are eligible for a tax refund, making charitable donations can increase the amount of your refund. This can provide additional financial benefits.
4. Support a Good Cause:
By making charitable donations, you can support a good cause and make a positive impact on your community. This not only benefits others but can also enhance your business’s reputation.
To claim a tax deduction for charitable donations, you will need to keep receipts and records of your donations. You can claim a tax deduction for donations made to registered charities, and the amount you can claim will depend on your taxable income and the amount you donate.
The Australian Government provides various grants and incentives that can help reduce your business tax bill.
R&D Tax Incentive: Businesses conducting research and development can claim tax offsets.
Export Market Development Grant (EMDG): Helps businesses expand into international markets.
Small Business Energy Incentive: Offers deductions for energy-efficient equipment and upgrades.
Review available programs with your accountant to take advantage of these tax-saving opportunities.
You can legally reduce your business tax bill by claiming all eligible deductions, prepaying expenses, utilising superannuation contributions, and taking advantage of government tax incentives. Proper financial records are crucial for substantiating these deductions and simplifying interactions with tax authorities concerning tax returns.
The tax-free threshold only applies to individuals. Businesses, depending on their structure, are taxed based on income levels and applicable company tax rates.
Yes. If you run your business from home, you may be eligible to claim a percentage of rent, electricity, internet, and office furniture costs as tax deductions.
Poor record-keeping can lead to errors in tax filings, potential audits, and penalties from the ATO. It’s essential to maintain accurate and up-to-date financial records.
Hiring an accountant is beneficial from the start of your business. They can assist with structuring, tax planning, bookkeeping, and financial forecasting to ensure long-term success.
At Trew North Accounting, we help small business owners in Melbourne reduce their tax bills and improve financial efficiency. Book a FREE Tax Strategy Session today and discover how you can legally lower your tax obligations and keep more money in your business.
Take control of your taxes and start saving today!
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