Sole Trader Tax Deductions Australia 2025-26: The Complete List

Tax deductions reduce your taxable income, which means you pay tax on a smaller number. For a sole trader, understanding what you can and can't claim can make a meaningful difference to your annual tax bill. The problem is that a lot of deductions are either overclaimed (claiming personal expenses as business) or underclaimed (not knowing something qualifies).

This guide covers every major deduction category for Australian sole traders in 2025-26, what the ATO actually allows, common mistakes, and the records you need to keep.

Quick answer: Sole traders can deduct most genuine business expenses: home office costs, motor vehicle use, tools and equipment, training, professional fees, software, super contributions, insurance, and marketing. The golden rule is the expense must be incurred in earning your business income — not personal use. Keep records for every claim.

This is general information, not tax advice — see your registered tax agent for your specific situation.

Source: ato.gov.au — Deductions you can claim

The Golden Rule

A deduction is allowed when an expense is incurred in producing your assessable income. If the expense is partly private and partly business, you can only deduct the business portion.

You cannot deduct: capital expenses (though they may be eligible for depreciation or instant asset write-off), private or domestic expenses, penalties and fines, or expenses that are specifically excluded by tax law.

Home Office Expenses

Working from home generates two types of potential deductions. They operate differently, and conflating them is one of the most common mistakes.

Running Expenses (The 70c/hr Fixed Rate Method)

Running expenses cover the added cost of working from home: electricity, gas, internet, stationery, phone usage for work.

The ATO's fixed rate method lets you claim 70 cents per hour for every hour you work from home. This rate covers electricity, gas, internet and phone — all in one. You can also claim depreciation on work-related equipment separately.

To use the fixed rate:

  • Keep a record of your total working-from-home hours (diary, timesheet, calendar)
  • The ATO requires you to have a dedicated work area, and the records must be kept from 1 July each year

Example: You work from home 30 hours per week for 48 working weeks = 1,440 hours. 1,440 × $0.70 = $1,008 deduction

Occupancy Expenses (Rent/Mortgage Interest, Rates, Insurance)

You can only claim occupancy expenses (a proportion of rent, mortgage interest, council rates, home insurance) if your home has a dedicated area that is used for your business and is not suitable for domestic use.

This is a higher bar than it sounds. A study you also use as a guest bedroom generally doesn't qualify. A dedicated studio that clients visit, or a room fitted out purely as an office, might.

Claiming occupancy expenses when you sell your home can also affect your main residence CGT exemption — another reason to get advice before claiming these.

The Actual Cost Method

Instead of the 70c/hr fixed rate, you can track actual additional costs. This requires keeping more records but can yield a larger deduction if your actual expenses are high.

Motor Vehicle Expenses

Car expenses are the most commonly audited deduction for sole traders. There are two approved ATO methods.

Cents per Kilometre Method

  • Maximum claim: 5,000 km per year
  • Rate for 2024-25: 88 cents per km
  • For 2025-26: check the current ATO rate at ato.gov.au as rates are reviewed annually
  • No logbook required — but you need to be able to show how you calculated your business kilometres
  • Simple and low admin, suitable for lower-mileage users

Maximum claim (at 88c/km): 5,000 × $0.88 = $4,400

Logbook Method

  • Keep a logbook for a continuous 12-week period recording every trip (date, destination, purpose, km)
  • Calculate your business use percentage from the logbook
  • Apply that percentage to ALL car expenses: fuel, insurance, rego, servicing, loan interest, depreciation
  • No 5,000 km cap — claim based on actual costs
  • The logbook is valid for five years if your usage pattern doesn't change materially

The logbook method requires more recordkeeping but typically produces a larger deduction for high-mileage business users.

See our full car expenses guide for a worked example comparing the two methods.

Tools, Equipment and Technology

Under $300 — Immediate Deduction

Items costing less than $300 can generally be deducted in full in the year of purchase, provided they're used wholly for work purposes.

Instant Asset Write-Off

The instant asset write-off allows eligible small businesses to immediately deduct the cost of eligible assets rather than depreciating them over time. The threshold and eligibility criteria have changed multiple times in recent years. Check the current ATO guidance for the current limit and rules — do not rely on figures from previous years' returns or media articles.

Higher-Value Equipment: Depreciation

For assets above the instant asset write-off threshold, the cost is depreciated over the asset's effective life using the ATO's published rates. Common examples: vehicles, computers, cameras, machinery.

Common Claimable Items for Sole Traders

  • Laptop, tablet, phone (business use portion)
  • Trade tools and equipment
  • Work safety gear, uniforms with logos or required protective function
  • Camera equipment for photographers
  • Musical instruments for working musicians

Common mistake: Claiming 100% of a mobile phone that's 60% personal use. Only the business use proportion is deductible.

Training and Professional Development

Course fees, textbooks, and online subscriptions directly related to your current business activity are deductible. Examples:

  • Bookkeeping course if you run your own books
  • Industry certifications relevant to your trade
  • Online courses on skills you use in your business
  • Professional conferences and seminars

Not deductible: Courses that help you get into a new career or qualify for a different job. The training must relate to your existing income-earning activities.

Professional Fees

Fees paid to accountants, tax agents, BAS agents and bookkeepers are fully deductible. This includes:

  • Tax return preparation
  • BAS lodgment
  • Bookkeeping services
  • Business structuring advice (in some circumstances — get specific advice)

Common mistake: Thinking only the tax return portion is deductible. Any professional fee for business financial services counts.

Software Subscriptions

Software you use in your business is a deductible expense. This covers:

  • Accounting and bookkeeping software (Summed qualifies)
  • Project management tools
  • Design software
  • CRM platforms
  • Website hosting and domain registration
  • Cloud storage services used for business

If you use software for both personal and business purposes, claim the business use proportion.

Superannuation Contributions

Sole traders can make personal super contributions and claim them as a tax deduction — but this requires following the correct process.

The superannuation guarantee rate for 2025-26 is 12% (up from 11.5% in 2024-25). Note: this rate applies to what you'd pay employees. For yourself as a sole trader, you're not required to pay super — but you should, and you can deduct the contributions you make to your own super fund.

To claim a deduction for personal super contributions:

  1. Make the contribution to a complying super fund
  2. Lodge a Notice of Intent to Claim form with your super fund before lodging your tax return
  3. Receive an acknowledgment from the fund
  4. Claim the deduction in your tax return

The concessional contributions cap for 2025-26 is $30,000 per year (this includes any employer contributions if you have them). Contributions above this cap are taxed differently. Check current ATO limits before contributing.

Insurance

Business insurance premiums are deductible. This includes:

  • Professional indemnity insurance
  • Public liability insurance
  • Business property insurance
  • Income protection insurance (premiums deductible; benefits are assessable income)
  • Theft and loss insurance for business assets

Not deductible: Life insurance, trauma/critical illness insurance (even if business-related), and personal superannuation funds with death cover built in (different treatment applies).

Marketing and Advertising

Costs to promote your business are deductible:

  • Google Ads and social media advertising
  • Website design and development
  • Business cards, flyers, signage
  • Photography for marketing purposes
  • Sponsorship of local events (subject to conditions)
  • SEO services and content creation

Common mistake: Claiming a new iPhone as a marketing expense because you use it for social media. If it's also your personal phone, only the business-use proportion is deductible — not the full cost.

Bank Fees and Interest

  • Bank fees on business accounts: deductible
  • Interest on a business loan or overdraft: deductible for the business-use proportion
  • Interest on a home loan with a business component (e.g., offset account used for business): complex — get advice

Not deductible: Interest on a loan used for personal purposes, even if the loan is technically in the business name.

Rent for Business Premises

If you rent a dedicated business space — an office, studio, workshop, market stall — the rent is deductible. If the space is shared with personal use, only the business proportion is claimable.

Phone and Internet

If you use your phone and home internet for business:

  • Calculate the business use percentage (e.g., 60% business use)
  • Claim that proportion of your bill

Keep a record for a representative 4-week period to establish your usage percentage — a detailed phone log or records showing the proportion of work calls is sufficient.

Meals, Travel and Entertainment

Meals while travelling for work: Deductible when you're away from home overnight for business purposes. Day-to-day lunch is not deductible.

Accommodation while travelling: Deductible for genuine business travel.

Client entertainment: The rules around entertainment are complex, and many expenses that feel like business costs are not deductible (and may also trigger FBT if you have employees). A working lunch with a client generally isn't deductible. Get specific advice if entertainment is a significant expense for your business.

Commuting: Travel between home and a fixed workplace is never deductible. It's personal travel regardless of how much you need to be at work.

Tools That Make This Easier

Tracking deductions all year is significantly easier than reconstructing them at tax time. If your records are organised throughout the year — transactions categorised, receipts attached — your accountant has everything they need and you're not scrambling in June.

Summed handles BAS prep automatically — try it free for 30 days at $9/mo. Start free →

FAQ

Q: Can I claim expenses I paid from my personal bank account?

A: Yes. The ATO doesn't require a separate business account (though it makes recordkeeping cleaner). What matters is that the expense was incurred for business purposes. Keep the receipt and note what it was for.

Q: Can I claim my home office if I rent?

A: Yes — the running expenses (70c/hr method) apply whether you own or rent. Occupancy expenses such as rent would require a dedicated-use area that isn't suitable for private use, which is a higher bar.

Q: I bought a $2,500 laptop. Can I claim it all this year?

A: Depends on the current instant asset write-off threshold and rules. If eligible, yes. If not, you depreciate it over its effective life. Check the current ATO position before claiming.

Q: Can I claim clothes I wear to work?

A: Only if they're occupation-specific (e.g., chef's whites, branded uniforms required by your employer, or safety gear). Conventional clothing — even if you only wear it at work — is not deductible.

Q: What records do I need to keep?

A: Tax invoices for all purchases, bank statements, receipts, and records substantiating the business-use proportion of mixed-use items. Keep everything for five years from the date you lodge the return.

Q: My partner does admin work for my business. Can I deduct wages I pay them?

A: You can deduct wages paid to a genuine employee, including a spouse or family member, provided the work is real and the rate is commercially reasonable. The ATO scrutinises this area closely. Excessive payments to associates are specifically targeted.

Q: Can I claim the cost of setting up my business (pre-revenue expenses)?

A: Some pre-business costs can be claimed once you start operating. Others (like incorporation costs) are treated as capital. Get advice from a registered tax agent about your specific start-up costs.