As a sole trader you can deduct expenses you incur in earning your assessable income. The test the ATO applies is straightforward: the expense must be for the business, you must have spent the money yourself and not been reimbursed, and you must have a record proving it. Where something is used partly privately, you claim only the business share.

The three rules everything else follows from

  1. It must relate to earning your income. A private cost does not become deductible because you paid it from the business account.
  2. You must have spent the money and not been reimbursed.
  3. You must have a record. Written evidence, kept for five years from the date you lodge.

What sole traders commonly claim

  • Tools and equipment used for work. Higher-value assets are generally depreciated over time rather than claimed at once, though write-off thresholds change from year to year.
  • Vehicle costs for business travel. Travel between home and a regular workplace is private; travel between job sites is not.
  • Home office costs if you work from home — a share of electricity, internet and phone.
  • Software and subscriptions used to run the business.
  • Insurance — public liability, professional indemnity, tool cover.
  • Professional fees — your accountant, and the cost of managing your tax affairs.
  • Advertising and marketing, including your website.
  • Training that maintains or improves a skill you currently use to earn income.
  • Bank and merchant fees on business accounts and card payments.

The ones people miss

  • The fee for managing your tax affairs, including what you pay an agent to prepare your return.
  • Personal super contributions, which may be deductible if you meet the conditions and lodge the required notice with your fund.
  • Bad debts you previously declared as income and have genuinely written off.
  • Interest on a loan taken out for business purposes.
  • Income protection insurance premiums, where the policy covers loss of income.

Rates and thresholds change every year

The cents-per-kilometre rate for vehicles, the fixed rate for working from home, and the instant asset write-off threshold are all reviewed regularly and have moved several times in recent years. Any article quoting a specific figure — including this one — goes stale. Look up the current rate on ato.gov.au for the year you are claiming, or ask your agent.

The records that make a claim stick

A deduction you cannot substantiate is a deduction you may lose on review. What the ATO expects:

  • Receipts or invoices showing the supplier, amount, what it was for, and the date.
  • A record of business-use percentage for anything used partly privately.
  • A logbook if you use the logbook method for a vehicle.
  • A record of hours worked at home if you claim home office running costs.
  • Five years of retention from the date you lodge the return the record supports.

A thermal receipt fades within a year or two, so photograph it when you get it. Balaana keeps the image against the transaction so the evidence and the claim never get separated.

GST and deductions are different things

If you are registered for GST, you claim the GST on a purchase back on your BAS at label 1B, and you claim the GST-exclusive amount as a deduction in your income tax return. Claiming the full GST-inclusive amount as a deduction as well is double-dipping. If you are not registered for GST, you claim the full amount you paid, because you never got the GST back.

Related reading

Frequently asked questions

You can claim the business-use portion. Work out a reasonable percentage based on actual use over a representative period and keep the record of how you arrived at it — a percentage with no working behind it is the kind of claim that does not survive a review.

Generally no. Travel between home and a regular place of work is private, even for a sole trader. Travel between job sites during the day, or to a client and back, is deductible. If you carry bulky equipment that cannot be left on site, different rules may apply.

Five years from the date you lodge the return the record relates to. If the record relates to a depreciating asset, keep it for five years after your final claim on that asset.

A sole trader is not legally required to have one, but it makes substantiation dramatically easier and it is what every accountant will tell you to do. Mixing private and business spending in one account is the fastest way to lose track of what is claimable.

Some start-up costs are deductible, and certain professional and legal costs of setting up a business have their own treatment. This is an area where a short conversation with a registered tax agent pays for itself.

Sources

Deduction rules and record-keeping requirements are set by the Australian Taxation Office. This article is general information for Australian sole traders — it is not personal tax advice, and it does not account for your circumstances. Confirm the current rules at ato.gov.au or with a registered tax agent.