Small Business Tax: How To Minimise Your Taxes in 2025

Small Business Tax: Top Tips To Save in 2025.

Let’s be honest – nobody starts a business because they love doing taxes (especially small business tax).

Unfortunately, taxes are an unavoidable part of running a business (unless you live over in The Bahamas or Vanuatu).

Plus, if you’re not doing your taxes properly, you could be losing money—or worse, risking fines from the tax office.

Here’s the good news: small business tax doesn’t have to be a nightmare.

With the right strategies, you can keep more of your hard-earned cash, stay on the ATO’s good side, and even use tax planning to grow your business.

Whether you’re just getting started or want to sharpen your tax approach, this guide will show you everything you need to know to master small business tax and maximise your savings.

Ok, let’s get started…

Small Business Tax Obligations

As a small business owner, you’re responsible for managing a range of tax obligations. Here’s a quick overview:

1. Business Structures and Tax Rates

The way your business is structured determines how you’re taxed. The main structures in Australia are:

• Sole Trader: You’re taxed as an individual, paying the same rates as personal income tax.
• Partnership: Income is split between partners and taxed at personal rates.
• Company: Taxed at a flat rate of 25% (for base rate entities <$50m in aggregated turnover) on profits.
• Trust: Income is distributed to beneficiaries, who are taxed at their personal tax rates.

2. GST (Goods and Services Tax)

If your business has an annual turnover of $75,000 or more, you’ll need to register for GST (unless you’re a non-profit). This means you’ll need to:

• Charge GST on your sales (10%)
• Claim GST on eligible expenses (10%)
• Lodge and pay GST via your Business Activity Statement (BAS) each month or quarter.

3. PAYG Withholding

If you have employees, you’ll need to withhold tax from their wages and remit it to the ATO regularly.

• Xero and other payroll software calculates this automatically for you.
• You’ll need to submit wage information via STP each pay cycle to the ATO.

4. BAS (Business Activity Statement)

BAS is how you report and pay GST, PAYG withholding, and other tax obligations. It’s usually lodged quarterly or monthly, depending on your annual turnover.

Deductions Every Small Business Should Know

One of the biggest benefits of running a small business is the ability to claim deductions. Here are some key deductions you should be aware of:

1. Home Office Expenses

If you work from home, you can claim small business tax expenses like:

• A portion of your rent if you have a dedicated office (note: it’s not recommend to claim your mortgage interest if you own your own home as it can affect CGT in the future).
• Utilities such as electricity, internet, and phone.
• Depreciation of home office equipment like laptops and printers.

2. Car + Travel Expenses

If you use your car for business purposes (bonus points if it’s a ute / workhorse vehicle), you can claim:

• Fuel and maintenance costs.
• Depreciation on the vehicle.
• Parking and tolls.

You’ll need to keep a logbook for 12-weeks to track business-related trips. The logbook is then valid for 5 years.

3. Equipment and Tools

The instant asset write-off allows you to immediately deduct the cost of equipment purchased for your business, such as computers, tools, or machinery. Check the ATO website for the current write-off limit as it changes each year.

4. Employee Expenses

If you hire staff, you can claim:

• Superannuation contributions (if paid on time)
• Training and development costs.
• Recruitment expenses.
• Uniform expenses.
• Staff amenities (tea, coffee, milk, biscuits, toilet paper – consumed at the work office).

5. Marketing and Advertising

Expenses related to promoting your business: online ads, social media campaigns, and website design, are all deductible. In-house software and websites may need to be depreciated over several years (depending on the useful life of the asset).

6. Legal + Accounting Fees

Fees paid to accountants, lawyers, or consultants for business related advice are usually tax-deductible. However, legal fees may need to be deducted over several years if they’re capital in nature.

7. Business Insurance

• Business insurance like workers compensation, motor vehicle insurance, and public liability should all be included in your list of expenses. You can also claim income protection in your personal tax return (if it’s paid outside of super).

Personal Services Income (PSI)

The Personal Services Income (PSI) and Personal Services Business (PSB) rules are important if you earn income by providing services, or because of your personal efforts, like consultants, doctors, or freelancers.

• PSI: This is income you earn mainly from your personal skills or work. For example, if you’re a consultant or IT contractor, most of your income will be PSI.
• PSB: If your business meets specific criteria, it can qualify as a PSB. This means you’re not restricted by PSI rules, giving you more flexibility with deductions and income structuring (e.g. doctors, lawyers).

There are four ATO tests to determine if you qualify as a PSB:

• Results Test: You must be paid for achieving a specific result, provide your own tools or equipment, and fix any mistakes at your own expense.
• Unrelated Clients Test: Your business income comes from 2+ unrelated clients, and you actively market your services to the public.
• Employment Test: You employ or contract others to do at least 20% of your work.
• Business Premises Test: You have a separate business location used mainly for your work, not your home or a client’s office.

If most of your income is PSI and you don’t qualify as a PSB, your deductions may be limited, and you’ll need to report your income differently.

Operating through a company doesn’t prevent PSI from occurring. Usually, if you’re paid on an hourly rate, your income will be considered PSI. If you’re paid on a job / project basis, your income will be PSB.

Tax Planning Strategies for Small Businesses

Proper small business tax advice can help you reduce your tax bill and keep more money in your pocket. Here are some smart strategies to consider:

1. Timing Your Income and Expenses

If you operate on a cash basis, you can control when income is recognised. For example:

• You might delay invoicing clients until July to push income into the next financial year.
• Prepay some expenses in June to claim these deductions earlier (top-up paper, stationery, office supplies etc.)

2. Salary Sacrifice and Superannuation Contributions

Making additional superannuation contributions (up to $30k per year) can reduce your taxable income. This strategy is particularly effective for sole traders or directors paying themselves a salary.

3. Structuring Your Business

Choosing the right business structure can save you money in the long run. For example:

• Companies have a lower tax rate than individuals. This can benefit growing businesses.
• Trusts allow income to be distributed to family members on lower tax brackets, which reduces your overall tax bill.

4. Depreciation

Instead of claiming large assets all at once, you can spread the cost over several years using depreciation. This helps smooth out your deductions and taxes over several years.

5. Keep Accurate Records

Good record-keeping is essential for claiming deductions and avoiding penalties. Use cloud-based accounting software like Xero, MYOB, or QuickBooks to track expenses and generate reports.

Case Study: Small Business Tax Savings in Action

The Problem: James runs a landscaping business in Sydney. He was struggling with cash flow, often leaving his BAS and PAYG lodgements until the last minute. He also wasn’t sure if he was claiming all eligible deductions.

The Solution: James hired an accountant to help with tax planning and compliance. Together, they:

• Set up automated BAS and PAYG payments to avoid late fees (transferring a fixed amount into a separate bank account each week).
• Identified additional deductions, including depreciation on his truck and tools, plus deducting TAFE course costs.
• Adjusted his invoicing schedule to spread income across financial years.

The Outcome: James saved over $8,000 in taxes during the first year and improved his cash flow by switching to monthly BAS lodgements.

Common Mistakes Small Businesses Make

Even with the best intentions, small businesses often make costly tax mistakes. Here are some of the most common:

1. Mixing Personal and Business Finances

Using the same bank account for personal and business expenses makes it difficult to track deductible expenses.

Things like food and beverages are usually not deductible unless they’re consumed during overtime or as part of a work related multi-day trip.

2. Failing to Lodge on Time

Late BAS or tax return lodgements can result in penalties and interest charges (which can add up VERY quickly over time, making it hard to catch up later).

3. Not Keeping Receipts

You can’t claim a deduction if you don’t have proof of the expense. Make sure you keep digital receipts, invoices, and records of your bank transactions. It’s also good if you can get the receipts in your business name.

4. Ignoring GST Registration Requirements

If your turnover exceeds $75,000 and you’re not registered for GST, you risk getting fined. Don’t stress – you can always backdate your GST registration if needed.

5. Underestimating Tax Liabilities

Not setting aside enough funds for tax obligations can lead to cash flow problems. The ATO has payment plans available for those in challenging circumstances.

Costs of Ignoring Tax Obligations

Failing to manage your taxes properly can have serious consequences for your business. Here’s what’s at stake:

1. Penalties and Fines

The ATO imposes fines for late lodgements, incorrect filings, and non-compliance with tax laws (and they’re not always forgiving).

2. Cash Flow Issues

Poor planning can leave you scrambling to cover tax bills, which can disrupt operations or delay payments to suppliers (plus cause added stress which you don’t need).

3. Missed Deductions

If you’re not claiming all eligible deductions, you’re leaving money on the table (and paying more tax than you need to).

4. ATO Audits

Inaccurate or inconsistent records can trigger an ATO audit, which is time-consuming, expensive, and stressful.

When to Hire a Tax Professional

While some small business owners handle their taxes themselves, there are many cases where hiring a tax professional might be better:

• Your business income / structure is becoming more complex.
• You’re struggling to keep up with ATO deadlines.
• You’re not sure if you’re claiming all eligible deductions or you feel like you’re paying too much in tax.
• You’re planning significant changes, like expansion, investments, or restructuring.

A tax professional can review your personal and business situation, helping to identify ways to save tax and run your business better.

How to Minimise Excess Taxes

Nobody wants to pay more tax than necessary. The key is to use legal and effective strategies to minimise your tax liability while staying compliant with ATO rules. You can’t just do something for a “tax benefit”, otherwise it’s considered illegal (see Part IV rules).

Here are some smart, legal ways to keep more money in your pocket:

1. Leverage the Instant Asset Write-Off

• The instant asset write-off allows you to immediately deduct the cost of eligible assets used in your business, such as equipment, vehicles, or machinery.
• This can significantly reduce your taxable income in the year of purchase.
• Pro Tip: Time your asset purchases strategically—buy before June 30 to claim the deduction in the current financial year.

2. Optimise Your Business Structure

• The structure of your business (sole trader, partnership, company, or trust) can have a big impact on your tax bill.
• For example, companies are taxed at a flat rate of 25% for base rate entities, which might be lower than your personal tax rate.
• Trusts can distribute income to beneficiaries with lower tax rates, reducing your overall tax burden.

3. Prepay Expenses

• If your cash flow allows, prepay certain business expenses like rent, insurance, or subscriptions before June 30 to bring forward the deductions.
• This is especially useful if you anticipate a higher tax rate this year compared to the next.

4. Contribute to Superannuation

• Super contributions are tax-deductible for employers, but they must be paid on time to claim the deduction.
• For sole traders or business owners, salary sacrificing additional contributions to super can reduce your taxable income while boosting your retirement savings.

5. Claim All Eligible Deductions

• Go beyond the obvious deductions like office supplies or vehicle costs. Consider less-known claims, such as:
  • Work-related training or certifications.
  • Interest on loans used for business purposes.
  • Quantity surveyor report for your rental property.
• Keep detailed records to back up your claims and ensure nothing is missed.

6. Use Tax Offsets and Rebates

• Take advantage of offsets like the Small Business Income Tax Offset, which reduces the tax payable on business income by up to $1,000 per year for sole traders and partnerships.

7. Consider Debt Recycling

• If you have both personal and business debt, use a strategy like debt recycling to convert non-deductible personal debt (like a home loan) into deductible business debt.
• Example: Refinance your home loan to release equity, then use those funds for business investments. This allows you to claim the interest on the business loan as a deduction.

8. Keep Your Payroll Tax in Check

• If your business is approaching payroll tax thresholds, consider hiring company-based contractors instead of employees (if they’re legitimate contractors). This can reduce your payroll tax obligations saving you 4-5% each year.

9. Move Overseas

• If you run an online or remote business, consider moving overseas. There are many countries that tax individuals and businesses at lower rates than Australia, like Thailand or Bali. Plus, you get the added bonus of a much lower cost of living!

Want To Know More?

Need help finding a small business tax accountant in your area? Want the best person for the job? Adventure Tax can help. To find out more, book a free call with me here.

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