Tax Deductions for Sole Traders & Small Business (2025–26)

Updated for the 2025–26 income year, with 2026–27 changes noted. Reviewed 19 October 2026.

As a sole trader you report business income in your individual tax return and claim business expenses against it. Getting deductions right – and using the small business concessions – can make a real difference to your tax bill.

What you can claim

Day-to-day business expenses

• Materials, stock, subcontractors and wages.
• Rent, utilities and insurance for business premises.
• Advertising, website, software subscriptions and bank fees.
• Accounting, bookkeeping and tax agent fees.
• The business portion of phone, internet and motor vehicle costs.
• Interest on business loans.

Assets: the $20,000 instant asset write-off

• Small businesses with aggregated turnover under $10 million can immediately deduct the business portion of assets costing less than $20,000 each, first used or installed ready for use between 1 July 2025 and 30 June 2026.
• The $20,000 threshold is permanent from 1 July 2026.
• Assets of $20,000 or more go into the small business pool (15% in the first year, 30% after).

Home-based business

• Running costs: the 70c per hour fixed rate or actual costs.
• Occupancy costs (rent, mortgage interest, rates, insurance) only if part of your home is set aside exclusively as a place of business. This can affect the main residence CGT exemption, so get advice.

Car expenses

Cents per km (88c for 2025–26, up to 5,000 km) or the logbook method. See our car expenses guide.

Super

Personal super contributions can be claimed as a deduction if you give your fund a valid notice of intent and receive its acknowledgement before lodging. They count towards the concessional cap of $30,000 for 2025–26 ($32,500 for 2026–27).

Small business income tax offset

If your business turnover is under $5 million, you may get an offset of 16% of the tax on your net small business income, up to $1,000. The ATO works it out from your return.

What you can't claim

• Private expenses, including your own wages or drawings.
• Private portions of mixed-use items.
• Fines and penalties, and the ATO's general interest charge (GIC) and shortfall interest charge (SIC), which aren't deductible from 1 July 2025.
• Entertainment such as client meals (generally not deductible, with no GST credits).
• Income tax itself.

GST, BAS and PAYG instalments

• Register for GST once your GST turnover reaches $75,000 (taxi and rideshare drivers must register regardless).
• Quarterly BAS are due 28 October, 28 February, 28 April and 28 July.
• The ATO may put you into PAYG instalments to prepay tax during the year.
• If you employ staff, super guarantee is 12%, and from 1 July 2026 it must be paid each payday under Payday Super.

Record keeping

• Keep all business records for 5 years: invoices, receipts, bank statements, logbooks, asset registers and payroll.
• Use a separate business bank account and accounting software such as Xero, MYOB or QuickBooks.
• If your income is mainly from your personal skills (personal services income), special rules may limit some deductions.

Worked example

All figures below are example figures only, for a hypothetical sole trader, and use 2025–26 resident tax rates.

Taylor is a sole-trader graphic designer (not registered for GST) with $85,000 in income (example figure). Expenses:

• software and subscriptions $2,400; insurance $900; accounting fees $1,500 (example figures);
• a new computer for $4,000 (example figure), 90% business use, written off under the $20,000 instant asset write-off: $3,600;
• home office fixed rate 1,200 hours × 70c = $840;
• a deductible personal super contribution of $11,760 (example figure, notice of intent lodged and acknowledged).

Total deductions are $21,000, so taxable income is $64,000. Tax on that, at 2025–26 rates, is $4,288 + 30% × ($64,000 − $45,000) = $9,988, plus the 2% Medicare levy of $1,280, before offsets such as the low income tax offset and the small business income tax offset. The super contribution is taxed at 15% in the fund.

Common mistakes to avoid

• Mixing business and private bank accounts.
• Claiming occupancy expenses without a place of business.
• Missing BAS due dates.

Checklist before you lodge

• Check your income statement in myGov is marked 'tax ready' and every allowance is included.
• Remove any expense your employer paid for or reimbursed.
• Apportion anything used privately and keep a note of how you worked out the percentage.

When to see an accountant

Talk to a registered tax agent if:

• you're unsure whether an expense is private or work-related, or your claims are much higher than last year;
• you have an ABN, side business or rental property as well as your job;
• you have received an ATO letter, review or amended assessment.

ATO sources for this guide

• ATO: Small business support 20000 dollar instant asset write off
• ATO: $20,000 instant asset write-off 2025-26
• ATO: Contributions caps
• ATO: Small business income tax offset
• ATO: Registering for GST
• ATO: BAS due dates
• ATO: Working from home expenses
• ATO: Cents per kilometre method
• ATO: Tax rates australian residents
• ATO: Records you need to keep
• ATO: Deductions for ATO interest charges denied
• ATO: About payday super
• ATO: Super guarantee
• ATO: Copyright notice

This guide is written in our own words. It draws on information published by the Australian Taxation Office, and some short phrases are quoted with attribution. Source material: © Australian Taxation Office for the Commonwealth of Australia. Top Accountants is not endorsed by, or affiliated with, the ATO.