Private ruling: Small business deductions
Date of advice: 2 December 2021
Published: February 2022
Ruling period: DD MM YYY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Can you claim a deduction for the cost of running your motor vehicles? | A1: Yes. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. You can claim a deduction for fuel; oil; repairs; servicing; interest on a motor vehicle loan; lease payments; insurance cover premiums and registration where your vehicle is used for income producing purposes. If you use a motor vehicle for both business and private use, you must be able to correctly identify and justify the percentage that you are claiming as business use. The percentage that is for private use is not claimable. For further information visit ato.gov.au and search for QC 33720. To calculate a deduction for the cost of running the two motor vehicles you owned when commencing the small business, you chose to use the cents per kilometre method. For further information visit ato.gov.au and search for QC 33712. To calculate a deduction for the cost of running the second-hand motor vehicle you purchased, you chose to use the logbook method. For further information visit ato.gov.au and search for QC 33731. Where the relevant records are kept for your business kilometres, you are entitled to claim a deduction for the associated motor vehicle expenses for your business use. | Q2: Can you claim an immediate deduction for the cost of purchasing a second-hand motor vehicle for business use? | A2: Yes. You meet the eligibility and threshold criteria outlined in Division 40-BB of the Income Tax (Transitional Provisions) Act 1997 , to claim an immediate deduction for the cost of purchasing a second-hand motor vehicle for business under temporary full expensing. Therefore, a deduction of $10,300 is allowable. For further information on the Temporary Full Expensing, visit ato.gov.au and search for QC 64428. | Q3: Can you claim a deduction for the cost of tools, equipment, and materials? | A3: Yes. Temporary Full Expensing allows full write-off for eligible assets first held at or after Budget Time 6 October 2020. This means that until 30 June 2022, depreciating assets qualifying for temporary full expensing are fully written off. Your tools that are used solely for income producing purposes and cost less than $300 are fully deductible. Where items are not depreciating assets, such as paint, you can claim a deduction for the income producing portion under section 8-1 of the ITAA 1997. For further information, visit ato.gov.au and search for QC 31938. | Q4: Can you claim a deduction for the cost of material purchased for a job which was not reimbursed? | A4: Yes. Under section 8-1 of the ITAA 1997, you can claim a deduction for the cost of material such as timber used for your income producing jobs. The deduction is still allowable even though a customer has not paid you for the work. If you recover the amount, then the relevant amount is included as assessable income in the income year that you receive it. When completing your tax return business car expenses are shown against your business income in the business and professional item section. Car expenses associated with working for an employer go at question D1.

Relevant facts and circumstances: You commenced a small business. You have an aggregated income of less than $5 billion in the relevant financial year. You received approximately $x from your work. You operate out of your home and travel to different locations to continue your income earning activity. You are required to transport bulky equipment. You commenced business, owning two motor vehicles for personal and business use and used the cents per kilometre method to claim your business travel. You purchased a second-hand motor vehicle for $x which is solely for business use and have kept a log book for 12 weeks. You spent almost $x on repairs and running costs for the second-hand vehicle. You spent approximately $x on various tools, equipment, and materials. You did not spend more than $300 on an individual tool. You spent $x on materials for a job which the customer refused to pay you for.

Relevant legislative provisions: Income Tax Assessment Act 1997, section 8-1 | Income Tax (Transitional Provisions) Act 1997 , Division 401-BB