Creating an expense policy is hard, there are many factors to consider. But none of them compares to the limitations set in place by the government. What you can and cannot expense by law is a serious consideration and should always be set out clearly in your company policy.
What are expenses and why do they matter?
Other issues such as budgetary constraints, the maximum amount per day for various categories of expenditure, and perhaps moral considerations such as which activities the company refuses to reimburse employees for. These should all be considered but they’re secondary to the expenses that you can’t write off.
Writing off expenses is one of the more satisfying aspects of running a business. It’s also why knowing what you can expense is so important. If you were to earn $20,000 in one year but spent $5000 on allowable expenses you would only pay tax on $15,000. That makes expenses a very attractive proposition. But you can’t let yourself get carried away with paying expenses just to reduce your tax bill, otherwise, your business won’t have enough money to operate next year.
What is an allowable expense
There are many allowable expenses for your business, and some of them have nothing to do with your employees. All these expenses need to do is relate to the running of your business.
Depending on the type of business you run you may need to stay reliably informed on industry news. Sometimes this means subscribing to niche publications and sometimes it means subscribing to expensive but public-facing publications. Either way, you can write that cost off and keep yourself and your team reliably informed.
Renting anywhere is expensive, and while some offices are downsizing thanks to the pandemic, many businesses are still opting to rent some office space for key meetings. It’s an easily arguable necessary purchase for your business to operate.
Staying current isn’t just about reading the news, your staff will need to go to conferences and take training courses to skill up over the lifetime of your business to be better employees for you. You might also want to train yourself more to be a better leader.
No matter what business you set up you’re going to need to engage the services of a lawyer or legal professional at some point. That might be to apply for a permit or to do a risk assessment of a business plan, but regardless of the reason why you’ll need to navigate the legal system to successfully run your business.
Many industries force you to have certain qualifications to operate in a sector or to provide certain services to the public. This is an underlying cost to the business that you need to get used to paying for.
Advertising and marketing expenses
Exactly what it sounds like, any time you’re spending money to shout about your business and raise your company profile you’re spending money on advertising and marketing. One good thing about this is that you don’t have to pretend that you accomplished business targets without spending any money on marketing.
After you’ve spent your life savings kickstarting your business and getting it off the ground you don’t want to lose everything because of human carelessness or a freak of nature accident. Get the insurance.
Do we need to explain this one? Supplies for the office, paper, pens, fire extinguishers, coffee, tea, milk, refrigerator, water cooler, basically anything and everything you buy for the office.
This goes for contractors as well as salaried employees. Your staff are the backbone of your business, without them, your business may as well not exist. Luckily, the more you pay them the less you have to send over for tax. One snag is that the people you pay have to work for your business — try not to give the dog a salary for Chief Fluffy Officer, that’ll get you in a whole heap of trouble.
Unfortunately, printer ink is super expensive and paper isn’t that much cheaper. Hopefully, you won’t need to print much out what with this being the digital age, but if you do any consumer-facing products then you’ll have to print to do consumer outreach.
Maintenance costs and repairs
This is mainly a concern for the office and any technical equipment you use, for many businesses this will only mean laptops, but for others, there will be unique product tools that need to be fixed (this is why you should get the insurance we talked about earlier).
There are plenty of free software options available in the world right now but you’ll still likely be shelling out some cash for professional-level software before long once you’ve started your business.
All this stuff above costs money. And it can get pretty complicated figuring out which purchases fit into which category, especially if you don’t do it as you go or if you’re making multiple purchases per day. A good accountant can help sort all that out for you and work out the total you have that’s tax-deductible. It’s a nice cherry on top that their services are tax-deductible too.
Travel costs (sort of)
This one is a bit trickier than the rest. Travel can be an expense in some circumstances, like going to a conference, flying to a business meeting, and the associated hotel costs. But you can’t use it to write off your regular commute costs on petrol or to get yourself a new car. One way around this though is to go remote. That’s what we’ve done at Cape and it works brilliantly, plus our CEO gets to go surfing every morning, which keeps him in a good mood all day.
What isn’t an allowable expense
All of these can be classified as allowable expenses. But there is one key rule for all of them. None of these expenses are to be used to enrich your personal life directly, they all have to be purchases made in the name of, running the business, furthering the business, and accomplishing business goals. The great thing about these expenses is that they’re all deductible, meaning that you don’t need to pay tax on any of them.
The expenses that aren’t allowable are things to do with your personal life. No flash cars for your personal use, say goodbye to that extension you’d been hoping to get and don’t spend the money on any holidays. All of those things will have to be paid for out of your pocket. So now you just need to make sure your business is making enough money that you can pay yourself the salary you need to buy those things outside of the business accounts.
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Acknowledgement of country
Cape acknowledges the deep connections of Aboriginal and Torres Strait Islander communities to Country. We pay our respects to the Traditional Owners of the lands of our team and customers across Australia. We recognise the continuing contributions of indigenous communities in Australia and around the world. We pay respect to all Aboriginal and Torres Strait Islander Elders, both past and present and are committed to continually learning from these powerful traditions as individuals and as a wider team.
Cape is a trading name of Cape Pty Ltd. We are registered in Australia (Australian Business Number 83 654 770 199). Our registered office address is ACS Harbour City Labs, Level 27, Tower 1/100 Barangaroo Ave, Barangaroo, NSW 2000