Switchboard Finance Logo – Tax Deduction Glossary

Tax Deduction

A Tax Deduction is an expense that a business can claim to reduce its taxable income. Lenders review tax deductions to understand true profitability, cashflow strength, and borrowing capacity when assessing Business Loans, Working Capital Loans, and Invoice Finance. Related terms: CAPEX, OPEX, Depreciation Schedule, Instant Asset Write-Off. Helpful hub: Business Owners Finance Hub.

Why Tax Deductions Matter

Tax deductions lower the amount of tax a business pays, improving cashflow. Lenders analyse deductions to determine whether expenses are strategic, recurring, or excessive — all of which affect loan assessments.

  • Reduces taxable income and tax payable
  • Improves cashflow position
  • Helps lenders understand true net profit
  • Essential for accurate BAS and tax reporting
  • Impacts borrowing capacity and serviceability

Common Business Tax Deductions

  • Tools, equipment, and machinery purchases
  • Vehicle running costs
  • Business insurance
  • Office supplies and software
  • Marketing and advertising expenses
  • Interest on business loans
  • Employee wages and superannuation

Many asset purchases fall under depreciating assets, which can be written off over time or instantly under the Instant Asset Write-Off program.

Official reference: ato.gov.au

Does every business expense qualify as a tax deduction?
No — only expenses directly related to earning assessable income are deductible.
Do lenders review tax deductions?
Yes — deductions impact cashflow and profit, affecting borrowing capacity.
Are asset purchases deductible?
Yes — many assets can be deducted through depreciation or instant write-off rules.
Do sole traders claim deductions differently?
They claim deductions through their personal tax return, but the rules are similar.
Can incorrect deductions cause loan delays?
Yes — inconsistent or excessive deductions raise risk flags for lenders.