All business want to make sure that they claim every possible deduction that they can. But costs must be substantiated to be deducted your assessable income.
Substantiation requires you to keep records, and to have access to receipts and tax invoices so you can prove your claim for deductions against your assessable income.
It’s a hassle to have to record all the little costs you incur on a day-to-day basis as you go about earning your income. Indeed, things can become really silly if the time taken to record small expenses exceeds the tax benefit of doing so. There is an easier way.
One simple solution is to use two credit cards. The first credit card is used strictly for private purposes. Pay-wave lunches and coffees, clothes, groceries and other personal items. There are two associated things to remember:
- This card is only used for private and domestic costs; and
- This card is never used for deductible costs.
The second credit card is used strictly for business purposes. Petrol for your car, on-line business payments, business airfares and accommodation, automatic professional subscriptions and so on. Once again, there are two associated things to remember:
- This card is only used for deductible costs; and
- This card is never used for private and domestic costs.
If you buy two books at a bookshop, Jamie’s latest cook book for your husband and Roth’s Top Stocks for your investment portfolio, you would pay for the cook book with your private credit card and you would pay for Top Stocks with your business credit card.
Once a month, once a quarter or once a year you simply download your business credit card statement to get an automatic on-line record of your smaller deductible costs and it’s all there ready for the ATO, in the unlikely event of an audit.
You can then set your business bank or overdraft account up so it automatically pays your business credit card off using a direct debit every month. The repayment is recorded as, say, “sundry deductible costs” and is automatically coded in your accounting software.
This has two advantages. First, you will never incur any credit card interest costs. Second, you will not incur any time costs: you will never have to think about it again.
