Personal vs Business Expenses

From our perspective as BAS Agents, we’re concerned with GST and your compliance associated with that (for personal income tax advice and deductions, you need to speak to you tax agent).

For this reason, we always emphasise the need for legitimate tax invoices for all business related transactions in order to claim the GST credit. In instances where there is a combined business/personal use of, for example, a motor vehicle, the expense allocation needs to be determined by your tax agent, which we will then apply on their advice.

You’ll often hear a lot about the importance of maintaining a work/life balance, but not so much about separating the personal from the business when it comes to balancing your books. Keeping your personal expenses separate from the business’ expenses is important in a number of ways.

Firstly, it enables you gain a clearer picture of the financial state of your business if you don’t mix your personal expenses with legitimate business expenses. By paying more expenses out of your business than you need to you inflate the operating costs, thus you decrease the profit that your business makes, and therefore the value of the business as an ongoing profitable concern. You also impact on the business’ cashflow, spending money on personal expenses rather than investing it in your business or clearing other debt and financial obligations.

Secondly, the ATO frowns on mixing business with pleasure and tend to see the presence of personal expenses mixed in with business as an indication/flag to investigate. The best way to survive an audit is to be prepared for by keeping your books as clean as possible (i.e. keep the personal personal, don’t make it the ATO’s business any more than you need to).

You can claim a deduction for most  but some of the more common things that people try to claim as a legitimate business expense that aren’t include:

  • Medical costs that aren’t part of a Workcover claim.
  • Vehicles, and vehicle expenses, for vehicles not owned/used by the company
  • Meals and refreshments
  • Childcare
  • Travel to and from your normal place of employment.

For a fuller list of what IS considered legitimate by the ATO visit:

https://www.ato.gov.au/Business/Income-and-deductions-for-business/What-you-can-claim-and-when/

Another reason to keep your personal expenses separate from your business is that it will save you both time and money. Time because you won’t have to keep answering our questions about the mysterious transactions popping up in your business accounts, and money because you won’t be paying us to weed them out and spend our time questioning you!