1. Product purchases

Everything sold in your store is tax deductible as a cost-of-sale. These products need to be purchased from somewhere, and the cost of stocking a store can be significant.

Whether you buy the products from a distributor as they are, or purchase the materials to make the products yourself, the purchases are tax deductible. Associated costs, such as packing and delivery costs, are also deductible. 

Make sure to also write off any lost or damaged stock in order to claim a tax deduction. 

2. Advertising and marketing costs

Advertising or marketing activities you undertake to publicise your retail store and sell stock are generally tax deductible, whether that’s social media ads, billboards, flyers, or another form of advertising that connects with your target market. Even business cards are tax deductible. 

If you’re considering opening a retail store, or growing your existing retail store, it’s also worth noting that the cost of hiring a marketing consultant is also tax deductible. 

One commonly missed deduction is the cost of advertising vacancies. Any advertising costs you incur in finding and hiring employees can be claimed as a tax deduction. 

3. Business insurance

Business insurance is an essential expense for many businesses. However, there are many different types of insurance. For example, general liability insurance covers some of the costs a business may face in fighting a lawsuit, whereas loss of income insurance protects a business when an unexpected event or tragedy forces a business to close its doors and lose out on profits. Visit the Australian Government website to learn more about the different types of business insurance and what they cover.

Whether or not your business insurance expense is tax deductible will depend on your individual situation. As a general rule, retail business owners can claim a deduction for most operating expenses. Insurance premiums, including fire, burglary, accident or disability, professional indemnity, public risk, motor vehicle, loss of profits, or workers’ compensation are included in the definition of operating expenses. Just make sure the insurance policy is owned by the entity responsible for paying the expenses (i.e. you or your business).

4. Property costs

The rent you pay for the store itself is tax deductible. If you own the property the store operates from, the mortgage is a tax deduction — as is the land tax. Water, electricity and rates are also tax deductible expenses. 

For retailers operating a solely online retail store, it’s worthwhile doing the maths to work out which of your home bills contain a portion of tax deductible expenses. Occupancy expenses, running expenses, as well as expenses involved in using your car to travel for business purposes — such as sourcing new stock — are all tax deductible.

5. Capital expenditures

A capital expenditure is something that improves existing business assets or overall business operations, and for that reason is usually tax deductible. Capital expenditures for retail stores can include:

• cash registers
• EFTPOS payment terminals
• store fittings and fixtures
• in-store security systems
• accounting software

and more. 

The instant asset write-off announced in last year’s budget has been extended for another 12 months, until 30 June 2023, meaning retail businesses can claim the full value of eligible assets that are purchased before that date. This could be further incentive to give your retail store a refreshed look, more geared towards Gen Z and customers of the future. 

However, there are some exclusions to the instant asset write-off retailers should be aware of — such as plants and capital works.

6. Staff salaries (including superannuation)

Retailers need staff to cover the floor, serve customers, process new stock arrivals, arrange merchandise and take inventory. The cost of staff can be considerable, especially if you require more senior employees such as floor managers and supervisors. Salaries should be competitive — otherwise, potential candidates will likely choose to work elsewhere, and you may find yourself spending time regularly hiring and training new staff. Luckily, staff wages are tax deductible. 

As an employer, you are also required to pay any workers earning at least $450 per calendar month a contribution to their superannuation fund. These super contributions are also tax deductible. The current super guarantee (the portion of wages that you, as an employer, must contribute to your workers’ retirement savings) is 9.5% of the employee’s wages. Sole traders can even claim a deduction for their own super contributions, through their personal tax return.

It’s also important to note that the 2021/22 Federal Budget contains a significant change to superannuation.

It will continue increasing by 0.5 per cent until it reaches 12 per cent, in 2025.

7. Fringe benefits

Providing fringe benefits is one way some businesses attract and retain quality employees.

A fringe benefit is a perk offered to a person specifically because they are a valued employee. These perks provide an additional incentive to work for a particular employer. Fringe benefits can be anything from insurance bundles to tuition reimbursement, or a parking space — which is generally highly valued by workers. 

The cost of providing fringe benefits is generally tax deductible, so businesses can leverage this opportunity to attract and keep staff.

8. Tax expenses

There are often costs associated with lodging taxes, including the price of hiring an accountant or bookkeeper to keep track of cash flow throughout the year, or working with a tax agent to lodge the necessary paperwork. Having a Business Activity Statement prepared is also tax deductible, as are the costs of complying with an ATO tax audit and objecting to a tax assessment you think is incorrect.  

Bonus tips for retail workers

We’ve gone over some of the expenses retail business owners can claim as tax deductions to save money when tax time rolls around — but what can employees of retail stores claim?

A retail employer should inform their employees about all of the deductions retail workers can claim on their income tax returns. Below are some expenses that often apply to retail workers.

• Uniforms: If a retail worker has to purchase a job-specific uniform for work, that is considered a business expense, and it is often tax deductible. Clothes bought to match a dress code, such as khaki pants and a polo, are not tax deductible. However, more industry-specific items like a chef’s coat, police uniform or protective gear are generally tax deductible. Learn more about the qualifications for tax-deductible clothing items.
• Travel expenses: Any transportation or lodging cost that a worker incurs for their job is considered a travel expense. These expenses are often tax deductible, whether it’s paying for a parking space or a hotel room for a work conference. 
• Equipment: Any equipment a retail employee must purchase for their job is a business expense, and likely tax deductible. Equipment can include something as expensive as a tablet or something as affordable as a clipboard.
• Educational expenses: If an employee spends money on improving their knowledge and expertise within their field of employment, the money they spend could be considered an educational expense. This can range from conferences and seminars to classes and textbooks. For example, if you run a flower store, your employees might want to take part in a floristry course.  
• Home office expenses: Given the nature of a retail worker’s day to day tasks, this deduction may only apply to your managers and senior staff. Any staff expected to work from home can likely include deductions for costs associated with setting up their home office. This includes internet and telephone fees that are work related, as well as the cost of equipment like a desk, monitor, keyboard and more.

Preparing your business for tax time

The general rule of thumb is that most expenses incurred in the running of a business can be claimed as a tax deduction — whether the cost is incurred in an effort to generate a profit, or protect the business’s assets. 

The above guide is a brief overview of what both your retail business and your employees could be claiming. Make sure to consult a financial advisor or accountant to discuss your specific circumstances.