Sole Trader Tax Deductions Guide

As a sole trader, you can claim deductions for expenses directly related to earning your income. The ATO requires that each expense has a clear connection to your business. Here are the most common deductions with typical claim amounts.

Home Office Expenses

If you work from home, you can claim a portion of your household running costs. The ATO offers two methods for 2025-26:

• Fixed rate method: 67 cents per hour worked from home. This covers electricity, phone, internet, stationery, and depreciation of furniture. You need a record of hours worked.
• Actual cost method: Calculate the actual costs of running your home office. Requires detailed records and receipts for every expense.

Typical claim: $1,500 - $4,000 per year for someone working from home 3-5 days per week.

Vehicle and Travel Expenses

If you use your car for business purposes (not commuting to a regular workplace), you can claim vehicle expenses using one of two methods:

• Cents per kilometre: 85 cents per km for 2025-26, up to a maximum of 5,000 business kilometres. No written evidence needed but you must be able to show how you calculated the distance.
• Logbook method: Keep a logbook for at least 12 consecutive weeks to establish the business-use percentage, then claim that percentage of all car expenses (fuel, registration, insurance, depreciation, servicing).

Typical claim: $2,000 - $8,000 per year depending on business use.

Equipment and Tools

Items you buy to use in your business can be deducted. The rules depend on the cost:

• Under $300: Claim an immediate deduction in the year of purchase.
• $300 or more: Depreciate over the item's effective life, or use the instant asset write-off if eligible (the threshold varies - check the ATO for current limits).

Common items include computers, printers, software licenses, tools of trade, cameras, and specialist equipment.

Typical claim: $500 - $5,000 per year depending on your trade.

Phone and Internet

You can claim the business-use portion of your phone and internet bills. If you use a single phone for both personal and business, you need to work out the business percentage. The ATO accepts a 4-week diary as a reasonable basis for calculating the split.

Typical claim: $600 - $1,800 per year (50-80% of a typical phone and internet plan).

Insurance

Business-related insurance premiums are fully deductible. Common types include:

• Professional indemnity insurance
• Public liability insurance
• Income protection insurance (premiums are deductible if the policy replaces income)
• Business contents insurance

Typical claim: $500 - $3,000 per year depending on your industry and cover level.

Professional Development

Courses, seminars, conferences, books, and subscriptions that relate to your current work are deductible. The training must have a direct connection to your current income-earning activities - you cannot claim for courses that qualify you for a new career.

• Online courses and certifications
• Industry conferences and events
• Professional memberships and subscriptions
• Trade journals and reference books

Typical claim: $200 - $2,000 per year.

Accounting and Legal Fees

The cost of managing your tax affairs is deductible. This includes:

• Accountant fees for preparing your tax return
• Bookkeeping software (Xero, MYOB, QuickBooks)
• Legal fees related to your business operations
• Tax agent fees for BAS lodgement

Typical claim: $500 - $2,500 per year.

Marketing and Advertising

Expenses to promote your business are fully deductible:

• Website hosting and domain names
• Social media advertising
• Business cards and printed materials
• Google Ads, Facebook Ads
• SEO and content marketing services

Typical claim: $200 - $5,000+ per year.

Superannuation Contributions

Voluntary super contributions are deductible up to the concessional cap of $30,000 for 2025-26. This is one of the most effective tax strategies for sole traders - it reduces your taxable income while building your retirement savings.

Example: A sole trader earning $100,000 who contributes $10,000 to super reduces their taxable income to $90,000, saving approximately $3,000 in tax (at the 30% marginal rate). The super contribution is taxed at only 15% inside the fund.

What You Cannot Claim

Not everything is deductible. Common items the ATO will reject:

• Private or personal expenses (even if paid from a business account)
• Commuting from home to a regular workplace
• Fines and penalties
• Clothing that is not a compulsory uniform or protective gear
• Entertainment expenses (meals with clients have limited deductibility)
• Initial training to start a new career

Record-Keeping Requirements

The ATO requires you to keep records for 5 years from the date you lodge your tax return. This includes:

• Receipts for all expenses (digital copies are acceptable)
• Bank and credit card statements
• Vehicle logbooks (if using the logbook method)
• Home office usage records
• Invoices issued and received