Sole trader tax deductions in Australia: what you can claim for 2025–26

Last checked 4 November 2026 against ATO guidance for the 2025–26 income year.

As a sole trader in Australia you can claim a tax deduction for most expenses you incur in carrying on your business, as long as they are directly related to earning your assessable income. You claim only the business share of anything you also use privately, and you need records to prove every claim. Sole traders claim these deductions in their individual tax return, in the business and professional items schedule.

This guide covers what you can and can't claim, how the ATO wants you to work out home, car and equipment costs, and when it is worth getting a registered tax agent to check your claims. For lodging the return itself, see our guide to the sole trader tax return in Australia.

The ATO's three golden rules for business deductions

The ATO says there are 3 golden rules for what it accepts as a valid business deduction (ATO, Business deductions):

1. The expense must have been for your business, available as an allowable deduction, and not for private use.
2. If the expense is for a mix of business and private use, you can only claim the portion used for your business.
3. You must have records to prove it.

One more rule catches many sole traders who are registered for GST: you can't claim the GST part of an expense as a deduction if you can claim it as a GST credit on your business activity statement (BAS).

What sole traders can claim

The ATO's categories of business expenses you may be able to claim, with common examples:

• day-to-day operating expenses, such as stationery, software subscriptions, advertising, phone and internet
• purchases of products or services for your business, such as stock and subcontractor costs
• certain capital expenses, such as the cost of depreciating assets like tools, machinery, computers and equipment, usually claimed over time unless an immediate deduction applies
• expenses for protecting staff from safety hazards, which the ATO says can include hand sanitiser, masks, gloves, other personal protective equipment and cleaning supplies used for business purposes
• the cost of managing your tax affairs, including lodging through a registered tax agent (ATO, Cost of managing tax affairs)

When you claim it

The ATO says operating expenses are generally claimed in the year you incur them, while capital expenses such as depreciating assets are generally claimed over a longer period. You incur an expense when you have a legal obligation to pay for it. An invoice is not strictly necessary, but you do need a record.

Paying in advance? If a prepaid expense is $1,000 or more and you won't receive the goods or services in full within 12 months, the ATO says you will usually need to spread the deduction across the service period unless you are eligible for an immediate deduction.

What you can't claim

The ATO lists expenses that are not deductible, including:

• entertainment expenses (other than those provided as an entertainment-related fringe benefit)
• traffic fines
• private or domestic expenses, such as childcare fees or clothes for your family
• expenses relating to income that is not assessable
• payments where you have not met your PAYG withholding or reporting obligations
• the GST component of a purchase if you can claim it as a GST credit on your BAS
• general interest charge (GIC) and shortfall interest charge (SIC) incurred on or after 1 July 2025

That last change matters if you have an ATO debt. Interest charges on late tax that used to be deductible are no longer deductible from the 2025–26 year, so paying down an ATO debt, or arranging a payment plan early, matters more than it used to.

You also generally can't claim the cost of capital assets dealt with under the capital gains tax rules, such as the land your business premises sit on.

Home-based business expenses

The ATO splits home costs into two groups (ATO, Home-based business expenses: sole trader or partnership).

Running expenses are the extra costs of working from home: electricity, gas, phone, internet, cleaning, stationery, and the decline in value of equipment and furniture. You can claim these even if you don't have a dedicated business area.

Occupancy expenses are what you pay to own, rent or use your home: rent or mortgage interest, council rates, land tax and house insurance. You can only claim these if part of your home has the character of a "place of business", for example a clearly identifiable workshop or salon used exclusively or almost exclusively for the business. The ATO usually expects these to be apportioned by floor area and the part of the year the space was used for business.

Two cautions from the ATO:

• If the personal services income (PSI) rules apply to you, you may not be able to claim occupancy expenses.
• If part of your home is a place of business, you may have to pay capital gains tax on part of any gain when you sell, even if you never claimed mortgage interest.

Three ways to work out running expenses

The ATO's own example compares the two main options for a sole trader called Pam, who works 30 hours a week from home for 48 weeks and buys a desk and chair. Using the actual cost method she can claim $1,313.04. Using the fixed rate method for 1,440 hours, plus the desk and chair under the simplified depreciation rules, she can claim $2,154. The ATO suggests working out each method and using the one that gives you the best result, provided you have the records for it.

Car and ute expenses

For a sole trader, how you claim depends on the type of vehicle (ATO, Motor vehicle expenses). For cars you can choose one of two methods.

Cents per kilometre. For 2025–26 the rate is 88 cents per business kilometre, up to a maximum of 5,000 business kilometres per car. The ATO has set the rate at 91 cents for 2026–27. The rate covers all running costs including depreciation, so you can't claim those separately. You don't need receipts, but you must be able to show how you worked out your business kilometres, for example with diary or calendar records (ATO, Cents per kilometre method).

Logbook. For claims above 5,000 kilometres you must use the logbook method for the whole claim. You keep a logbook for at least 12 continuous weeks that is representative of your travel, then claim the business-use percentage of all car expenses. A logbook is valid for 5 years if you keep it and record odometer readings at the start and end of each year (ATO, Logbook method).

For vehicles that are not cars, such as utes and vans designed to carry a load of one tonne or more, the ATO says you can't use either method: you claim actual costs based on receipts, separating private use with a diary. Private trips, such as driving children to school, are never deductible.

Tradies and contractors: car, ute and tool claims are where records matter most. Compare tradies and construction accountants in Queensland, New South Wales, Victoria or Western Australia.

Tools, equipment and the instant asset write-off

If your business has an aggregated turnover under $10 million and you choose the simplified depreciation rules, you can use the instant asset write-off. The ATO says this gives an immediate deduction for the business portion of an asset's cost in the year it is first used or installed ready for use, where the asset costs less than $20,000. This limit applies to assets first used or installed ready for use on or after 1 July 2023 (ATO, Instant asset write-off).

Points the ATO stresses:

• The whole cost must be under the limit, not just the business share. The ATO's example is a $40,000 ute used 40% for business: the business share is $16,000, but the ute can't be instantly written off because its full cost is above $20,000.
• Assets at or above the limit go into the small business pool, which the ATO says depreciates at 15% in the first year and 30% in each later year.
• It works per asset, for new and second-hand assets.
• GST: if you can claim a full GST credit on the purchase, exclude the GST from the asset's cost.
• Cars have a cost limit. For 2025–26 the car limit is $69,674 for passenger vehicles designed to carry fewer than 9 passengers and a load of less than one tonne.

Before buying an asset for the deduction, check the ATO page for the income year you will claim in, because these limits and rules have changed many times.

Personal super contributions

Sole traders don't have to pay super guarantee for themselves, but the ATO says you can make personal super contributions and most people can claim a tax deduction for them until they turn 75 (ATO, Super for sole traders and partnerships).

The step people miss: before you claim, you must give your fund a valid notice of intent to claim a deduction and receive its written acknowledgment. For 2025–26 contributions, the notice must be given by the earlier of the day you lodge your 2026 tax return or 30 June 2027 (ATO, Personal super contributions). Contributions above the caps can attract extra tax, and a deducted contribution isn't eligible for the government co-contribution.

Personal services income can limit your claims

If you earn personal services income (PSI) and the PSI rules apply, the ATO says they limit the deductions you can claim against that income. This often affects contractors who earn most of their income from one client. Use the ATO's PSI tool or ask a registered tax agent before you claim items like home occupancy costs (ATO, PSI). Our sole trader tax return guide explains the PSI questions in myTax.

Keep the records

The ATO says most business records must be kept for 5 years (ATO record-keeping rules). For deductions that means receipts and invoices, plus records showing how you worked out any business-use percentage: a 4-week diary, logbook or record of hours worked from home. If your tax affairs are simple, the ATO notes you can record expenses and car trips with the myDeductions tool in the ATO app.

Using accounting software makes this easier. Many accountants list the software they work with, so you can search for Xero accountants in NSW or MYOB accountants in Victoria, or bookkeepers in Queensland. For a wider look at software versus an accountant, see our guide to sole trader accounting in Australia.

When to get a registered tax agent to check your deductions

Many sole traders claim their own deductions in myTax. In our editorial view, a registered tax agent is worth considering if:

• you work from a dedicated space at home and want to claim occupancy costs (and understand the capital gains tax trade-off)
• you drive more than 5,000 business kilometres, or use a ute or van with private use
• you bought tools, equipment or a vehicle and aren't sure whether the instant asset write-off or the small business pool applies
• you earn PSI from one main client
• you are registered for GST and want your BAS credits and income tax deductions to line up (see BAS and GST accountants in NSW or Queensland)

The ATO says the cost of lodging through a registered tax agent is itself deductible. Check any agent on the TPB register before you engage them, and use our guide to choosing an accountant in Australia for the questions to ask.

Find a sole trader accountant: browse sole trader accountants in New South Wales, Victoria, Queensland, Western Australia or South Australia, or search the full Fiscly directory.

Frequently asked questions

What can I claim as a sole trader in Australia?

Most expenses you incur in carrying on your business that are directly related to earning assessable income: operating costs, stock, the business share of phone, internet and home running costs, car expenses, and the decline in value of tools and equipment. You can only claim the business portion of mixed-use items, and you need records.

Can sole traders claim the instant asset write-off?

Yes, if the business has an aggregated turnover under $10 million and uses the simplified depreciation rules. Each asset's full cost must be less than $20,000 (for assets first used or installed ready for use on or after 1 July 2023). Assets at or above the limit go into the small business pool.

What is the cents per kilometre rate for 2025–26?

88 cents per business kilometre, up to 5,000 business kilometres per car. The ATO has set 91 cents for 2026–27. For more than 5,000 business kilometres you must use the logbook method.

Can I claim my home office as a sole trader?

You can claim the additional running expenses of working from home, using the fixed rate, floor area or actual cost method. You can only claim occupancy costs such as rent, mortgage interest and rates if part of your home has the character of a place of business, and that can have capital gains tax consequences when you sell.

Is the interest the ATO charges on late tax deductible?

Not any more. The ATO lists general interest charge and shortfall interest charge incurred on or after 1 July 2025 as non-deductible.

Start your shortlist

Want someone to check your deductions before you lodge? Browse the Fiscly accountant directory by state, region or speciality, then check your top two or three on the TPB register before you book.

Are you an accountant or tax agent? Claim or add your Fiscly profile so sole traders searching in your area can find you.

General information only. This article is not financial, tax, legal or accounting advice and does not consider your personal circumstances. Rates, limits and rules change, so check the linked ATO and TPB pages for the income year you are claiming in, and speak to a registered tax practitioner about your situation. Fiscly does not recommend or endorse any individual accountant listed in the directory.