How to Track Expenses and Maximise Deductions for Australian Businesses

Running a business in Australia comes with a range of expenses. Whether you’re a sole trader, a small business owner, or managing a larger company, keeping track of expenses and claiming the right deductions can significantly reduce your taxable income.

In this guide, you’ll learn how to efficiently track expenses and maximise your deductions to ensure you get the most out of your business tax return.

Let's Get Straight to the Point

If you're short on time, here's a quick breakdown of how to track expenses and claim deductions effectively:

• Record Expenses Daily – Use a bookkeeping system or accounting software to log every business-related transaction.
• Separate Business & Personal Accounts – Keep your business finances independent for easier tracking.
• Know What’s Deductible – Common deductions include office supplies, rent, vehicle expenses, and professional development.
• Use Digital Tools – Leverage apps for receipt tracking and automatic expense categorisation.
• Understand ATO Rules – Be aware of the latest tax laws to ensure compliance and avoid penalties.
• Bunch Expenses Strategically – Consider shifting expenses into one financial year if you're close to a deduction threshold.
• Keep Detailed Records – Store invoices and receipts for at least five years to meet ATO requirements.

Now, let's go deeper into the specifics.

Why Tracking Expenses Matters for Australian Businesses

Accurate record-keeping isn't just about tax time—it helps businesses stay financially organised and maximise eligible deductions. Failing to track expenses properly can lead to:

• Missed deductions that could reduce taxable income.
• ATO audits if expenses are poorly documented.
• Cash flow issues due to unexpected tax liabilities.
• Overspending and poor budgeting as a result of inaccurate records.

A structured approach ensures compliance with Australian tax laws while keeping finances under control.

Setting Up an Effective Expense Tracking System

1. Open a Business Bank Account

One of the first steps to accurate expense tracking is separating business and personal finances. A dedicated business bank account allows you to:

• Track income and expenses efficiently.
• Provide clear records if audited by the ATO.
• Avoid mixing personal purchases with business deductions.

Many banks offer business accounts with accounting integration, making financial management easier.

Opening a business credit card can also help track spending while keeping transactions separate from personal finances. Many banks also provide business savings accounts that allow you to set aside funds for tax payments, superannuation, or future investments.

2. Choose the Right Accounting Software

Investing in accounting software simplifies expense tracking and reporting. Popular choices in Australia include:

• Xero – Cloud-based software for real-time tracking.
• MYOB – Great for payroll and tax management.
• QuickBooks Online – Ideal for small businesses.

Using software with GST tracking, invoicing, and receipt storage helps businesses stay compliant.

Most cloud-based accounting tools automatically integrate with the Australian Taxation Office (ATO), allowing for seamless BAS (Business Activity Statement) reporting and compliance with Single Touch Payroll (STP) requirements.

3. Automate Expense Recording

Manual data entry is time-consuming and prone to errors. Automating expense tracking ensures accuracy and efficiency.

• Link your business bank account to accounting software for automatic transaction categorisation.
• Use receipt-scanning apps like Hubdoc or Expensify to store digital copies of receipts.
• Set up alerts for recurring expenses such as rent, utilities, and subscriptions.

4. Track Cash Payments and Small Purchases

Not all business expenses will be made via a business account or credit card. Cash purchases—such as office supplies, petrol, or parking—should be documented immediately.

• Use a mobile app to record cash transactions in real-time.
• Attach receipts to transactions in your accounting software.
• Consider using a petty cash system with receipts for small, frequent purchases.

Common Business Tax Deductions in Australia 

1. Home Office Expenses

If you run your business from home, you can claim:

• A portion of electricity and internet bills.
• Office furniture and equipment such as desks and computers.
• Cleaning costs for the workspace.

The ATO provides a fixed rate deduction ($0.67 per hour) for home-based work expenses.

You may need to split costs accordingly if you work from home and from an office.

2. Vehicle & Travel Expenses

If you use a vehicle for business purposes, claim:

• Fuel, maintenance, insurance, and registration costs.
• Depreciation of business-owned vehicles.
• Parking and toll fees for business-related travel.

Airfare, accommodation, and meals may also be deductible for business trips.

3. Office Equipment & Technology

• Laptops, printers, and office furniture.
• Software subscriptions (e.g., Adobe, Microsoft Office, cloud storage).
• Mobile phone and internet costs (if used for business purposes).

Under the temporary full expensing scheme assets(under $20,000) can be written off immediately under the temporary full expensing scheme (available until June 30, 2025).

Maximising Deductions: Smart Strategies for 2025

1. Bunch Expenses for Bigger Tax Benefits

Certain deductions only apply if costs exceed a minimum threshold. You can maximise claims by bunching expenses into one financial year.

Example:

• If your professional development expenses are close to the deductible threshold, consider pre-paying for next year’s courses in June 2025.
• If upgrading equipment, buy before June 30, 2025, to claim deductions sooner.

2. Prepay Business Expenses

Businesses can prepay up to 12 months of certain expenses and claim deductions in the current tax year. This includes:

• Office rent.
• Insurance premiums.
• Business subscriptions.

3. Claim Depreciation Deductions

Larger business assets must be depreciated over time rather than fully deducted. The Instant Asset Write-Off allows businesses to claim eligible assets under $20,000 immediately.

ATO Compliance: Avoiding Common Mistakes

1. Keep Receipts & Records for at Least 5 Years

The ATO requires Australian businesses to keep financial records for at least five years. This ensures that you can provide documentation to support your claims if the ATO conducts an audit or review.

1. What Records Do You Need to Keep?

Every business owner should retain the following records:

• Invoices and receipts for all business-related purchases.
• Bank statements that show transactions related to business expenses.
• Records of payments made to employees (including PAYG withholding tax).
• Business Activity Statements (BAS) and GST lodgements.
• Documents related to business income, including sales records and contracts.
• Details of asset purchases and depreciation schedules.

2. Best Practices for Record-Keeping

• Use cloud-based accounting software to store records securely.
• Keep digital copies of receipts in case of fading or loss.
• Use separate folders for different tax years to simplify auditing.
• Check that records are legible and easily accessible.

Warning: If you lose receipts or fail to maintain accurate records, the ATO may disallow deductions, which could increase your taxable income and result in higher tax liabilities.

2. Avoid Claiming Personal Expenses as Business Deductions

One of the most common mistakes business owners make is mixing personal and business expenses. The ATO has strict rules around what can and cannot be claimed as a business deduction.

1. Examples of Incorrect Deductions:

• Personal groceries, clothing, or household bills (even if you work from home).
• Entertainment expenses (e.g., personal dinners, event tickets, or social outings).
• Private vehicle expenses (unless related to business travel).
• Family holidays or trips (even if some work is conducted).

2. How to Ensure Business and Personal Expenses Are Separate:

• Open a dedicated business bank account and use it for all expenses.
• Keep a separate business credit card to track purchases.
• If using a vehicle for business and personal use, maintain a logbook to differentiate between trips.
• Only claim the business-use portion of expenses such as phone, internet, and vehicle costs.

ATO Tip: If you claim personal expenses as business deductions, you could face fines, interest charges, or a full audit. It’s always safer to ask a tax professional before claiming a questionable deduction.

3. Correctly Claiming Business Vehicle Expenses

Many businesses use vehicles for operations, but incorrectly claiming car expenses can lead to audits and disallowed deductions.

How to Correctly Claim Vehicle Expenses:

Method 1: Logbook Method

• Keep a detailed logbook for at least 12 consecutive weeks.
• Record each business trip, including the date, distance, purpose, and location.
• The logbook determines the percentage of business use applied to fuel, registration, servicing, and insurance expenses.

Method 2: Cents Per Kilometre Method

• Businesses can claim a fixed rate per kilometre (88 cents per km in 2025).
• Maximum claimable distance: 5,000 business kilometres per year.
• No need for a logbook, but a reasonable estimate must be provided.

Common Mistakes That Trigger ATO Audits:

• Claiming 100% of vehicle costs without supporting records.
• Using an incorrect logbook period (must be updated every five years).
• Overestimating kilometres travelled for work-related purposes.

ATO Reminder: Only the business-use portion can be deducted if a vehicle is used for business and personal purposes.

4. Working with a Registered Tax Agent

Tax laws and regulations change frequently, making staying compliant without professional advice challenging.

Benefits of Using a Tax Agent:

✔ Ensures accurate deductions and tax reporting.
✔ Helps minimise tax liabilities legally.
✔ Reduces the risk of audits and fines.
✔ Provides strategic tax planning for the next financial year.

ATO Tip: Using a registered tax agent also extends your tax lodgement deadline—instead of lodging by October 31, you may qualify for a May 15 extension.

Conclusion

Tracking expenses and claiming the right deductions can significantly reduce tax bills and increase profitability. Australian businesses should:

✔ Use accounting software for easy tracking.
✔ Keep receipts and invoices for all business-related expenses.
✔ Claim deductions wisely to maximise tax savings.
✔ Stay updated on ATO rules to ensure compliance.

By implementing these strategies, businesses can reduce taxable income, boost cash flow, and improve financial stability.