Tax Deduction for Tools, Equipment and other Assets? 2025–26 Guide

Updated for the 2025–26 income year (tax returns lodged from 1 July 2026), with 2026–27 changes noted. Reviewed 19 October 2026.

If you buy tools or equipment to do your job, you can claim a deduction for the work-use portion. How you claim depends on the cost.

1. Items costing $300 or less

Claim the full work-use portion in the year you buy it, if:

• you use it mainly to earn non-business income (for example, as an employee)
• it isn't part of a set that together cost more than $300, and
• it isn't identical or substantially identical to other items that together cost more than $300.

From ATO guidance: a worker buys 16 spanners one at a time for $22 each ($352 total). Because they form a set costing more than $300, she can't claim them immediately – she claims decline in value instead.

2. Items costing more than $300

Claim the decline in value over the item's effective life (use the ATO's Depreciation and capital allowances tool), apportioned for private use and for the days you held it in the first year.

Example (illustrative figures only): Tal buys a $1,500 brick and paving saw on 5 September, uses it 100% for work and the effective life is 5 years. Year 1 (300 days held): $1,500 × 300/365 × 20% = about $247.

3. Repairs, insurance and hire

• Repairs to work tools and equipment: deductible for the work-use portion
• Insurance on tools: deductible for the work-use portion
• Hiring equipment you use for work: deductible

4. Tool allowances

A tool allowance on your income statement is assessable income. You then claim what you actually spent on eligible tools – not the allowance amount.

5. What you can't claim

Tools your employer supplies or reimburses, and the private-use portion of any tool.

6. Sole traders and small businesses

If you run a business with aggregated turnover under $10 million, you can immediately deduct the business portion of each asset costing less than $20,000 under the instant asset write-off – for assets first used or installed ready for use from 1 July 2025 to 30 June 2026, and the $20,000 threshold is now permanent from 1 July 2026. More expensive assets can go into the small business pool (15% in the first year, 30% after). We can set this up in your books and claim GST credits on your BAS.

7. What changes from 1 July 2026

For employees, depreciation and repairs on tools used to earn wages reduce the new $1,000 standard deduction, and new assets used mainly to earn wages can't be added to a low-value pool. See our tradies guide for more.