How Do I Separate Personal and Business Expenses?
Last updated: 25 October 2026.
Mixed-up personal and business spending is one of the most common bookkeeping problems we see, and one of the most avoidable. It makes every later task harder: reconciling, preparing BAS, working out profit, and showing a lender or buyer what the business really earns.
This guide explains the practical steps, using ATO and business.gov.au guidance (checked 25 October 2026). It covers records and bookkeeping. Whether a particular cost is deductible, and how company money taken out by an owner is treated for income tax, are matters for a registered tax practitioner, so we point to the ATO guidance and leave the advice to them.
The short version: open a separate business bank account and card, pay yourself through a defined route (drawings for sole traders, wages, dividends or properly documented loans for companies), avoid paying personal costs from business funds, and for costs that are genuinely shared, keep a record of how you work out the business portion.
Step 1: Open separate accounts
The ATO and business.gov.au both say that if you operate through a partnership, company or trust, you must have a separate bank account for that business. Sole traders do not have to, but both say it is better to. The ATO’s reason is that you can then easily separate business transactions from personal ones, including cash taken from the business as drawings.
If a sole trader does use one account for both, business.gov.au says you must clearly identify personal payments and expenses in your cash book, and the ATO says to reconcile regularly so you understand what goes through the account and why. In practice that is a lot more work than a second account, which is why we recommend keeping them apart from day one.
- Business transaction account for all income and expenses.
- Business credit or debit card used only for business.
- Tax and GST savings account, if useful, so BAS and PAYG money is not spent. See our guide to profit versus cash.
Step 2: Decide how the owner is paid
What is appropriate depends on your structure, and business.gov.au spells out the difference:
| Structure | How owners can take money out, per business.gov.au and the ATO |
|---|---|
| Sole trader | You can take money out of your business account as personal drawings |
| Company | The company may pay a director or employee wages, salary or directors’ fees, or pay money via shares, dividends or loans. A director cannot simply draw money from the company as personal drawings |
The ATO also notes that a payment or other benefit from a private company to a shareholder or their associate can be treated as a dividend for income tax purposes under Division 7A, even if it is recorded as a loan or advance, unless it is repaid or converted to a complying loan by the company’s lodgment day. We do not give advice on that area. If you have taken money out of a company without a clear route, talk to your registered tax practitioner before year-end. We will help gather the transaction history.
Whichever route you use, set a regular amount on a regular day (a weekly or fortnightly transfer) rather than paying personal bills from the business account as they arise.
Step 3: Handle mixed-use costs on a fair basis
Some costs are genuinely shared: the phone, home internet, a vehicle, part of the home used for work. The ATO says that for an expense with both business and private use, you can only claim the portion used for your business, and that the apportionment must be fair and reasonable and reflect the private use. It also says your records must show how you worked out the business use proportion. Examples the ATO gives of records include a diary over a representative four-week period, or how you calculated the percentage of floor area used for business.
From a bookkeeping view:
- Pay shared costs from one account, and record the business percentage in your notes or a workings file.
- Record the private portion as owner drawings (sole trader) or as a documented amount owed by the owner, rather than leaving it inside an expense account.
- Keep the evidence behind the percentage. Review it once a year or when circumstances change.
For the detailed rules on what can be claimed, refer to the ATO’s business deductions guidance or your registered tax practitioner.
Step 4: Know what is never a business expense
The ATO says you cannot claim private or domestic expenses, for example childcare fees or clothes for your family. Keep those off the business card. If one slips through, record it correctly rather than hiding it. A coding mistake today is simple to fix, whereas an unexplained pattern is not.
Step 5: Reconcile monthly and fix slip-ups promptly
The ATO says to regularly reconcile bank records, including to identify private expenses paid via a business account that need to be excluded. A good monthly routine:
- Reconcile the business bank and card accounts to the statements.
- Look at every transaction coded to a general or “miscellaneous” account and check it is truly business.
- Move personal items to drawings (or a director’s loan account for a company, as your adviser directs).
- Check the drawings or owner loan balance and compare it to what you intended to take out.
If months have slipped, see our guide to catching up on overdue bookkeeping.
Step 6: Use your software to help
- Bank rules: automatically code regular business suppliers, and flag everything else for review.
- A drawings account: ready for personal items, so there is always somewhere correct to put them.
- Receipt capture: attach receipts at the time, along with a note of the business purpose.
- A “to query” list: park uncertain items instead of guessing.
Why it matters
- Accurate profit: personal costs inside expenses understate profit, and business income in a personal account hides turnover.
- GST and BAS: GST credits can only be claimed on business purchases. See what records a small business must keep.
- Finance and sale: lenders and buyers look at clean statements.
- Liability: business.gov.au notes that a sole trader is personally liable for business debts, while a company is generally a separate legal entity. Blurring the lines can weaken that separation, so ask a lawyer if you are unsure.
How we help
We set up clean chart of accounts and bank rules, handle monthly reconciliations and flag owner-related items for review. See our bookkeeping services and small business accounting page, or email info@guidancegrowth.com.au or use our contact page.
Frequently asked questions
Do I need a separate bank account for my business?
If you operate through a partnership, company or trust, yes, according to the ATO and business.gov.au. Sole traders do not have to, but both say it is better to have one.
Can I pay myself from my company bank account?
A company may pay wages, salary or directors’ fees to a director, or pay dividends or loans, but a director cannot simply take personal drawings, according to business.gov.au. Speak to a registered tax practitioner about the tax treatment.
What if I use one account for business and personal spending?
As a sole trader you must clearly identify personal payments in your cash book, and reconcile regularly. A separate account makes that far simpler.
How do I handle expenses that are partly personal?
The ATO says only the business portion can be claimed, apportioned on a fair and reasonable basis, and your records must show how you worked out the proportion.
I paid a personal expense from the business account. What now?
Record it as drawings (sole trader) or as an owner-related amount in line with your adviser’s direction, rather than leaving it in an expense account. Do not delete the transaction.
Is this the same as asking what I can claim as a deduction?
No. This article covers separating and recording expenses. Deductibility is a tax question for a registered tax practitioner.
Sources and further reading
- ATO: Banking records, business (checked 25 October 2026)
- business.gov.au: Set up your business bank account (checked 25 October 2026)
- business.gov.au: Difference between a sole trader and a company (checked 25 October 2026)
- ATO: Business deductions (checked 25 October 2026)
- ATO: Records required for business deductions (checked 25 October 2026)
- ATO: Private company benefits, Division 7A dividends (checked 25 October 2026)
This article is general information, not personal advice. Rules and dates can change, so check ato.gov.au or acnc.gov.au for the latest, or speak to us about your situation.