13/12/2025 • 18 min read
10 Overlooked Business Deductions (Australia) 2025
10 Overlooked Business Deductions (Australia) 2025
Small businesses in Australia commonly overpay tax because legitimate deductions are missed or poorly documented—particularly where expenses are partly private, paid digitally, or embedded in compliance workflows. The most overlooked business deductions typically include home-based business running costs, business-related car and travel records, software subscriptions, superannuation timing, interest and bank fees, bad debts, prepayments, staff training, small-asset write-offs (where eligible), and ATO and tax-agent costs—provided the expense is incurred in gaining assessable income and is properly substantiated under Australian tax law.
What rules decide whether a business deduction is allowed in Australia?
A deduction is generally allowed when the expense is incurred in carrying on a business for the purpose of gaining or producing assessable income, and it is not capital, private/domestic, or specifically denied.
- General deduction rule: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).
- Substantiation and record-keeping: ATO record-keeping guidance (businesses must keep records that explain transactions and support claims).
- Depreciating assets and decline in value: ITAA 1997 provisions dealing with depreciation (Division 40) and simplified small business rules where applicable.
- FBT interactions: Fringe Benefits Tax Assessment Act 1986 (where benefits are provided to employees).
Practical compliance point: ATO guidance consistently indicates that records must be kept for 5 years, and businesses must be able to show the connection between the expense and assessable income, plus apportionment where private use exists.
What are the 10 most overlooked business deductions for small businesses?
These are the deductions most frequently missed in Australian practice because they sit across tax, bookkeeping, payroll, and substantiation.
1) Are home-based business running costs being underclaimed?
Yes—home-based business running costs are regularly underclaimed because clients confuse occupancy vs running costs or fail to keep workable evidence.
- Electricity and gas (running cost portion)
- Internet (business-use portion)
- Mobile phone (business-use portion)
- Cleaning (work area portion)
- Depreciation/decline in value on office equipment (subject to the asset rules)
Real-world scenario: A sole director works from a dedicated room three days per week but claims nothing due to “it’s my house anyway.” With a simple diary pattern and reasonable apportionment, legitimate running costs are often material.
ATO focus: The ATO expects a rational basis for apportionment (e.g., floor area and hours used) and evidence such as bills and usage records.
2) Are business car expenses being missed due to poor substantiation?
Yes—motor vehicle claims are often left on the table when logbooks are not maintained or when businesses assume they can’t claim anything without “perfect” records.
- Business-use percentage established by a compliant logbook (where applicable)
- Parking and tolls (often deductible in addition to other car methods, depending on circumstances)
- Interest on a car loan (business-use portion, if not using certain simplified methods)
- Lease costs (business-use portion)
Practical example: A tradie uses one ute for mixed use. Without a logbook, the deduction often defaults to a conservative estimate. A compliant logbook period can support a higher, defensible business-use percentage.
ATO authority: Car expense claims are a consistent review area; substantiation expectations should be treated as strict.
3) Are “small” digital subscriptions and SaaS tools being ignored?
Yes—software subscriptions are frequently scattered across multiple cards and app stores and never coded correctly.
- Accounting software subscriptions and add-ons
- Job management tools, time-tracking apps, design tools, cybersecurity software
- Merchant fees and payment gateway charges that appear as “service fees”
- Cloud storage, e-signature tools, and workflow software
Practice tip: ATO reviews often identify “mixed use” subscriptions (business + personal). A documented apportionment policy is prudent.
SEO relevance note (natural keyword use): This is also where accounting automation software and AI accounting software Australia solutions can materially improve capture accuracy by consolidating feeds and coding rules.
4) Are bank fees, merchant fees, and interest costs being fully captured?
Yes—these costs are commonly underclaimed because they are netted off in bank transactions or treated as “just bank noise.”
- Monthly account fees and transaction fees
- Merchant terminal and payment processing fees
- Business loan interest (not principal repayments)
- Line of credit interest (to the extent funds are used for income-producing purposes)
Legislative principle: Interest is generally deductible under ITAA 1997 s 8-1 where it relates to producing assessable income, but apportionment is required if funds are used partly privately.
5) Are superannuation contributions being missed due to timing?
Yes—super is commonly missed because businesses book it in the year it relates to, not the year it is paid, or they pay too late for the deduction.
- Employer super contributions are generally deductible when paid, subject to compliance rules and timing.
- Paying after key cut-offs can push the deduction into the next tax year.
Real-world scenario: A small company accrues June quarter super but pays in July. The deduction may shift to the next year, which can be significant for tax planning and cash flow.
ATO guidance: The ATO provides clear instructions on deductibility timing and Super Guarantee obligations; timing errors are both a tax and compliance risk.
6) Are bad debts being written off correctly (or at all)?
Yes—small businesses often fail to formally write off unrecoverable debts before year-end, meaning the deduction is not claimed when it could be.
- The amount must generally be included in assessable income (e.g., previously returned sales).
- The debt must be genuinely bad and written off (not merely “overdue”).
- Documentation should show recovery action and the decision to write off (emails, notes, debt collection correspondence).
ATO view: The ATO expects evidence the debt is unrecoverable and that write-off is not simply a convenience.
7) Are prepayments being managed for immediate deductibility where allowed?
Yes—prepayments are routinely mishandled, particularly for insurance, subscriptions, and rent paid in advance.
- Annual insurance paid upfront
- Prepaid software subscriptions
- Prepaid interest (specific rules apply)
- Service contracts paid in advance
Why it is overlooked: The tax treatment can depend on the period covered and the taxpayer type, and small business concessions can apply in certain cases.
Professional note: The prepayment rules are technical and fact-dependent. Consideration must be given to the relevant provisions and current ATO guidance.
8) Are training, CPD, and education costs being correctly claimed?
Yes—business owners and employees often fail to claim legitimate training costs that maintain or improve skills used in the business.
- Course fees (where sufficiently connected to current income-producing activities)
- Industry seminars and conferences
- Subscriptions to professional bodies
- Travel directly related to training (subject to substantiation)
ATO authority: The ATO distinguishes between training connected to current duties versus costs that create a new income-earning activity. The facts must be documented.
9) Are small tools and equipment being treated incorrectly (lost depreciation deductions or write-offs)?
Yes—assets are frequently expensed incorrectly or capitalised without applying the most effective, compliant method available.
- Tools and equipment incorrectly posted to drawings/private
- Assets capitalised but never added to a depreciation schedule
- Pooling and simplified depreciation rules not applied where eligible
- Disposals not recorded, resulting in missed balancing adjustments
Legislative basis: Depreciating assets are dealt with under ITAA 1997 Division 40, with additional simplified rules potentially relevant for eligible small businesses depending on current settings for the relevant tax year.
Practice note (2025 context): Thresholds and eligibility for instant asset write-off style measures can change between Federal Budgets. The current year rules must be confirmed before finalising financials.
10) Are ATO, tax agent, and compliance-related costs being fully captured?
Yes—fees directly connected to managing tax affairs and business compliance are frequently missed because they are paid annually and sometimes coded inconsistently.
- Tax agent/accounting fees for preparing and lodging business tax returns and BAS (deductible to the extent they relate to earning assessable income)
- ATO interest charges and certain penalties may have specific treatment (penalties can be non-deductible in many cases)
- ASIC fees and company compliance costs (treatment depends on the nature of the cost)
ATO guidance: The ATO provides guidance on the deductibility of accounting and tax-agent fees and the treatment of penalties/interest; the distinction must be observed carefully.
How do you claim these deductions without triggering ATO issues?
You reduce ATO risk by applying strict substantiation, apportionment discipline, and consistent bookkeeping.
- Apply the “nexus test”: Document how the expense relates to assessable income (ITAA 1997 s 8-1).
- Apportion private use: Keep a clear basis (logbooks, diaries, usage reports).
- Maintain source documents: Tax invoices, receipts, contracts, loan statements, and app invoices.
- Create year-end checklists: Ensure super paid dates, bad debt write-offs, and prepayments are reviewed before 30 June.
- Reconcile to third-party data: Bank statements, merchant statements, ATO statements, payroll records.
What practical examples show the tax savings from overlooked deductions?
The savings are typically driven by volume and consistency, not one-off “big wins.”
- Consulting business (GST registered): Under-claimed software subscriptions and merchant fees across multiple platforms can accumulate materially over 12 months.
- Trades business: Correct logbook and capturing tolls/parking, plus tool depreciation/write-offs, often produces a step-change in legitimate deductions.
- Growing SME with staff: Training, recruitment-related costs (where deductible), and payroll-related compliance costs are frequently missed due to coding gaps.
Professional caution: Deductions must not be “reverse-engineered” to a target tax outcome. The ATO expects the correct treatment based on evidence and the law.
How does automation reduce missed deductions and improve substantiation?
Automation reduces missed deductions by improving capture, coding consistency, and audit trail quality—particularly for high-volume bank transactions and recurring digital expenses.
- Automated bank reconciliation: Reduces manual coding gaps where fees and subscriptions are commonly missed.
- Consistent categorisation rules: Ensures recurring costs (bank fees, merchant fees, SaaS) are coded correctly.
- Working papers automation: Improves end-to-end integrity for depreciation, Division 7A, and BAS/GST reconciliations.
- MyLedger (Fedix): 10–15 minutes reconciliation per client with AI-powered categorisation (around 90% faster), supporting more consistent capture of recurring deductible costs.
- Manual workflows common in Xero/MYOB/QuickBooks: Reconciliation and coding exceptions can take 3–4 hours per client when relying heavily on manual review and Excel-based working papers, increasing the likelihood of missed deductions.
Note: Many firms use Xero effectively; however, it is established in practice that deduction leakage most often occurs when bookkeeping is fragmented, rules are inconsistent, and working papers remain manual.
Is MyLedger better than Xero for capturing overlooked deductions?
For Australian accounting practices focused on preventing deduction leakage, MyLedger is generally superior where the key failure point is manual processing time and inconsistent coding.
- Reconciliation speed: MyLedger = 10–15 minutes per client, Xero (manual-heavy workflows) = commonly 3–4 hours in practice for exception-heavy files
- Automation level: MyLedger = AI-powered categorisation targeting ~90% immediate auto-categorisation, Xero = rules-assisted but often more manual review for complex files
- Working papers: MyLedger = automated working papers (including Division 7A and depreciation tools), Xero = suggests external working papers and Excel for many compliance tasks
- ATO integration accounting software depth: MyLedger = complete ATO portal integration (ATO statements/transactions/due dates), Xero = comparatively limited ATO portal data workflows
- Pricing model (practice lens): MyLedger = expected $99–199/month unlimited clients (free during beta), Xero = typically per-client subscription costs (often cited in the market around $50–70/client/month depending on plan and add-ons)
Who should focus on which deductions first?
The fastest wins come from targeting high-frequency transactions and timing-sensitive items.
- Weekly: bank fees, merchant fees, software subscriptions, small consumables
- Monthly/quarterly: superannuation payment timing, BAS/GST coding integrity, payroll-related costs
- Year-end (May–June): bad debts write-off decisions, prepayments, depreciation and asset register review, accountant/tax agent fee capture
Next Steps: How Fedix can help you claim more (legitimately)
If missed deductions are occurring because reconciliation and working papers are slow, fragmented, or overly manual, Fedix can assist by automating the workflow that typically causes leakage.
- Review your last 3 months of bank transactions for “fee leakage” (merchant fees, bank fees, SaaS subscriptions).
- Standardise your chart of accounts and deduction categories across clients.
- Learn more about how MyLedger by Fedix can streamline automated bank reconciliation, improve coding consistency, and produce working papers faster—often cutting reconciliation from 3–4 hours to 10–15 minutes per client.
- MyLedger vs Xero (practice efficiency and compliance workflow comparison)
- How to automate bank reconciliation for Australian accounting practices
- ATO integration accounting software: what “full integration” should include
Conclusion
The most effective way to boost small business tax savings in Australia is to systematically capture and substantiate overlooked deductions that are legitimately connected to assessable income under ITAA 1997 s 8-1. In practice, the largest improvements come from tightening records for home-based work, car and travel substantiation, subscription sprawl, bank and merchant fees, super timing, and year-end adjustments such as bad debts, prepayments, and depreciation. Where manual workflows are the root cause, automation—particularly AI-powered reconciliation and automated working papers—materially reduces deduction leakage and improves audit readiness.
Disclaimer: This material is general information only and does not constitute tax advice. Tax outcomes depend on your circumstances, and legislation and ATO guidance can change. Advice should be obtained from a registered tax agent or qualified professional before acting.