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new business setup - tax deductions against salary

Discussion in 'Accounting, Tax & Legal' started by louise294, 12th Feb, 2013.

  1. louise294

    louise294 New Member

    12th Feb, 2013
    bexley north
    Hi there,

    I have just set up an online business, and am also full time employed.

    I have set up the business as a sole trader and registered for an ABN.

    I have two questions:

    1. I have incurred quite a number of expenses in the months prior to applying for the ABN - travel expenses, registration of domain name and website development (from scratch) - around $5 -7000. Are these expenses tax deductable if they were incurred prior to registering for an ABN?

    2. Are expenses in setting up the business tax deductable against my primary income (salary)? I am almost certainly going to run at a loss in the first financial year.

  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    Guide to claiming business deductions

    The costs of actually setting up the business (registration costs, cost of finance, etc) can be written off over 5 years at 20% per year.

    Guide to claiming business deductions

    The other costs can also be considered capital costs (they don't directly relate to the cost of running the business, they are startup costs), but I think they can also be written off over 5 years ... look at example 1 on this page:

    Blackhole expenditure: business related expenses

    As a sole trader, my understanding is that all income and expenses are lumped together, so you can effectively claim at least some of those initial costs against your tax ... however, you do need to be cautious, because if the ATO deems that your activities fall into the "hobby" category and were never intended to become commercially viable, they can disallow the deductions. I'm not suggesting this is the case here - you've obviously invested quite a bit to get going, so I assume it's a serious venture.

    There are also provisions for "non-commercial losses" which may come into play early on, which might force you to defer your initial losses to be offset against future income (thus, no immediate deduction).

    Guide to non-commercial losses

    Either way - your tax is about to become a lot more complicated, so I strongly suggest getting a good accountant to help you with your business and tax!