Can you claim tax deductions for wage and salary you pay your employees? This is a common question that businesses, particularly those who are new, ask at the end of the Financial Year.

As the Financial Year ends and you prepare for the lodgement of your tax returns, knowing what you can claim is as important as being able to lodge your returns before the deadline. You want to take advantage of all tax deductions you can claim.

And yes, as an employer, you can claim tax deductions for your employees’ wage and salary. Wage and salary are considered by the Australian Taxation Office (ATO) as working or revenue expense eligible for tax deduction.

Whether you can claim tax deductions for wage and salary expense though, depends on the kind of business you operate.

Tax Deductions You Can Claim for Wage and Salary As a Sole Trader and Partnership

If you are a sole trader and you pay yourself a salary, you cannot claim tax deductions for ‘wage and salary.’ The ATO considers you as the business owner and not an employee. Thus, even if you exact separate payment for your work from the incomings, the wage and salary you pay yourself is considered a distribution of profit, not wage and salary.

The same applies to businesses operating as partnership. The ATO considers you as a partner and not an employee. Therefore, you don’t get a salary but a distribution of profit. Take note though that you may still be able to claim tax deductions for the profit.

You will only be able to claim tax deductions for wage and salary paid to non-owners like contractors, for example. If you hire contractors to complete services your business provides, you may be able to claim tax deductions for the wage and salary you pay them.

You can generally claim tax deductions for payments to your employees if you comply with the pay as you go withholding (PAYGW) and reporting obligations for the payment.

It’s not always easy to identify all claim opportunity and claiming tax deductions can be very complicated.

To ensure you’re getting all tax deductions you are eligible to, get professional advice and choose an accountant who can help not only prepare your tax return but also make certain you are maximizing your claims.

Contact us today if you need help. Sleep better at night knowing your return is prepared by an expert here at Chan & Naylor Accountants.


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