Claiming Private Expenses Through your Business

The ATO allows a business owner to pay for partly private expenses from their business accounts, providing that an adjustment is done for this either at each BAS, or at the end of the year.

Some small businesses may be able to account for the private portions of expenses once a year instead of on every BAS. To be eligible for the annual apportionment, the business turnover must be less than $2 million.

What this means is that when the BAS is lodged, the business owner is able to claim the full amount of GST on an expense without deduction of any private portion. The private portion is then deducted at the June BAS.

This can be the tax agent’s area but you do need to identify these expenses for the reporting to the accountant. Use a tag or job code to identify the relevant transactions that have a private portion.

Record Keeping

For the business to pay for the expense, the expense must be at least partly for business use. It must also be a GST supply, and the owner must have a valid tax invoice for the expense. Expenses that are wholly private in nature may not be included in the BAS. They may be paid for by the business, but these expenses would be allocated to an owner drawings account.

The business owner does not need to inform the ATO specifically about private calculation, but must keep records about the adjustment; however, the bookkeeper may need to provide the tax agent with verification for the claims at the end of the financial year.

Eligibility for Annual Apportionment

  • Annual turnover of less than $2 million
  • Must be reporting BAS monthly or quarterly, (i.e., they do not pay GST instalments or report GST annually)
  • The business needs to assess their eligibility annually

Bookkeeping Process

An adjustment can be made at either the end of the financial year or in conjunction with the business’ income tax return, to account for private usage throughout that year.

Journal Entry Example

Date

Type

Account

Debit

Credit

30/6/16

Expense

Motor Vehicle

 

$1,000.00

 

Liability

Directors Loan

$1,000.00

 

 

Liability

GST Paid (GST already claimed)

 

$ 100.00

References