Deductions
Revenue expenditure
Revenue expenditure is the everyday cost of running a business, such as wages, rent, stock and repairs, which is generally deductible in the year it is incurred.
Revenue expenditure refers to the regular costs of earning income and keeping a business operating. Examples include wages, rent, utilities, advertising, stationery, insurance, minor repairs, and the cost of goods bought for resale. These costs are consumed or used up in the short term, and they do not create a lasting asset for the business.
The general rule for income tax is that revenue expenditure is deductible in the income year in which it is incurred, provided it is connected with earning your assessable income and is not private or capital in nature. For most small businesses this means you claim the cost against income in the same year. Some timing rules apply, such as those for prepaid expenses, where the period covered by the payment extends beyond the year.
Telling revenue spending apart from capital spending is a fundamental skill. Repairs that restore an asset to its original condition, such as fixing a broken window, are usually revenue. Improvements or replacements that provide a new and lasting benefit are usually capital. How you classify a cost determines whether it is deducted straight away or over a number of years.
For GST, revenue purchases are a major source of credits. A business registered for GST can generally claim a credit on the GST included in purchases made for a creditable purpose, using the BAS. Non-capital purchases are reported at G11 and the GST amount feeds into the credits shown in the BAS. You need a tax invoice for purchases over $82.50 GST inclusive, and credits are generally claimed in the BAS for the period of the invoice, within four years.
Some revenue costs carry no GST at all, such as wages, which are not subject to GST, and certain government charges. Financial supplies like bank fees are input-taxed, so no credit is available on the related fees. Reading the supplier invoice carefully and coding each cost with the right GST code in your software prevents errors.
A common mistake is deducting private expenses within a business account or claiming the full cost of an item used partly for private purposes. Another is claiming a credit without a valid tax invoice. This is general information only, so confirm your own situation with the ATO or a registered tax professional.
Worked example
A registered plumber pays $2,200 including GST for new advertising and $660 including GST for vehicle servicing. Total non-capital purchases are $2,860 including GST. GST credits are $2,860 / 11 = $260. The GST-exclusive deduction is $2,600. Both items are revenue expenditure, claimed in the year they are incurred, with the GST-inclusive amount reported at G11 on the BAS.
Practical tips
- Code each cost with the correct GST code. Wages and bank fees carry no claimable GST, so they should not be treated like normal purchases.
- Keep tax invoices for purchases over $82.50 GST inclusive, as you need them to claim the credit.
- Treat a repair that really replaces a major part as a possible capital item and check before claiming it all at once.