Private use refers to the personal use of goods or services that are primarily acquired or intended for business or investment purposes. Private use is relevant for tax purposes because it affects the deductibility of expenses and the calculation of taxable income.
The Australian Taxation Office (ATO) provides guidelines and rules regarding private use for tax purposes. These rules are designed to ensure that taxpayers accurately report their income and expenses and prevent the inappropriate claiming of tax deductions for personal expenses.
In simple terms you cant claim a tax deduction for something that is not used for business.
The ATO considers private use as a situation where an expense is incurred for both business and personal purposes. When an expense has a private component, only the business portion of the expense is generally deductible for tax purposes.
For example, if a business owner uses their vehicle for both business and personal purposes, they must apportion the expenses such as fuel, maintenance, and insurance based on the percentage of business use. Only the portion directly related to business use is eligible for tax deductions.
The rules around private use aim to strike a balance between allowing legitimate business expenses and preventing taxpayers from inappropriately claiming personal expenses as tax deductions. By distinguishing between business and private use, the tax system ensures that taxpayers pay tax on their personal income and only claim deductions for expenses genuinely incurred in the course of their business activities.