For a sole trader on the 30% marginal tax rate (taxable income $45,001–$135,000 in 2025–26), every $1,000 of legitimate deductions saves $300 in income tax — plus another $20 in Medicare levy at 2%. For someone in the 37% bracket ($135,001–$190,000), the saving is $390 per $1,000. In the top 45% bracket (over $190,000), it's $470 per $1,000.
Most sole traders leave thousands of dollars on the table every year. Not because they're cheating, but because they don't know what they can claim, they don't keep receipts, or they're scared of getting it wrong. This guide fixes that.
You'll get every deduction available to Australian sole traders for the 2025–26 financial year, the rules that govern them, the records you need to keep, and worked examples so you can apply each one to your own business.
Before we get to the list, every deduction the ATO accepts has to pass three tests. If any one fails, the deduction is denied — and the ATO can apply penalties on top.
The expense must be directly related to producing your assessable business income. Buying a tablet to manage client invoices passes. Buying the same tablet for your kids passes only as a gift, not a deduction.
Personal expenses — your weekly groceries, family clothing, school fees — are never deductible, even if you're self-employed. Where an expense is partly business and partly private (vehicle, phone, home internet), you can only claim the business portion.
The ATO will not take your word for it. You must hold a receipt, invoice, bank statement, or other written evidence for every claim, and keep it for five years from the date you lodge the return.
If your total work-related expenses are under $300, you don't need receipts — but you must still be able to show how you calculated the figure.
If you run your business from home — even part of the time — you can claim a portion of your household running costs. There are two ATO-approved methods:
Fixed rate method (FY2025–26): 70 cents per hour of work performed at home. Covers electricity, internet, phone, stationery, computer consumables, and depreciation of office equipment under $300. You must keep a record of hours worked from home (a diary, spreadsheet, or timesheet for the full year).
Actual cost method: Claim a percentage of actual bills based on the floor area of your dedicated workspace. More work, but often a bigger deduction if you have a clearly delineated home office. You can claim:
Electricity and gas — proportional to office area and usage
Internet — business percentage of monthly bills
Phone — business percentage of mobile and landline bills
Stationery and consumables (paper, pens, ink, toner)
Note: as a sole trader you generally can't claim occupancy costs (mortgage interest, rent, council rates, insurance) unless your home is your principal place of business and you have an area used exclusively for business — which can have CGT implications when you sell. Get advice before claiming occupancy costs.
Cents-per-kilometre method — 88 cents per business kilometre (FY2025–26), capped at 5,000 km per year. Simple, no logbook needed, but you must be able to show how you calculated the kilometres
Logbook method — claim the business percentage of all running costs (fuel, servicing, registration, insurance, depreciation, lease payments). Requires a 12-week logbook every five years
Tolls and parking for business trips
Public transport, taxi, ride-share for client meetings or work travel
Domestic flights for business travel
Hotel accommodation when travelling for business overnight
Meals when travelling overnight (subject to ATO reasonable amounts)
International travel for genuine business purposes (e.g., trade shows, supplier visits)
Travel between home and your usual place of work is not deductible — that's commuting. Travel from home to a client site, between client sites, or to deliver goods is deductible.
Trade tools and equipment specific to your work (a chef's knife set, a sparky's test meter, a photographer's lens)
Software licences — Microsoft 365, Adobe Creative Cloud, accounting software
Cloud storage and backup
Web hosting and domain registration
Cameras, microphones, lighting (for content creators and photographers)
Items costing less than $300 can be deducted in full in the year you buy them. Items costing more must be depreciated over their effective life — unless you qualify for the instant asset write-off (currently $20,000 for small businesses with turnover under $10m for FY2025–26), in which case you write off the entire cost in the year of purchase.
Courses, seminars, conferences directly related to your current business activities
Industry-specific certifications and renewals
Professional development books and journals
Online courses and subscriptions (Udemy, LinkedIn Learning, MasterClass for relevant skills)
Travel to attend training (if not local)
The course must maintain or improve skills for your current income-earning activities. A course to qualify for a different career — for example, a tradie studying for a real estate licence — is not deductible. A tradie taking an advanced asbestos handling course is deductible.
Tax preparation fees are deductible in the year you pay them, not the year they relate to. Keep the receipt from your accountant for next year's return.
Payments to subcontractors for genuine business services
Wages paid to employees (gross amount including PAYG withheld)
Superannuation paid on behalf of employees
Workers compensation premiums for staff
Recruitment costs
Personal "wages" you pay yourself as a sole trader are not deductible — your profit is your income. You can only deduct payments to genuine third parties.
Genuinely uncollectable invoices that have been included in your assessable income, where you have made reasonable recovery attempts and physically written the debt off in your books before 30 June. You can also claim back the GST you paid on the original sale.
Personal concessional contributions to your own super, capped at $30,000 per year for FY2025–26 (or higher with carry-forward unused cap if eligible). You must lodge a notice of intent to claim a deduction with your super fund before lodging your tax return.
Super for employees — including contractors deemed employees for super purposes
This is one of the most powerful deductions available. A sole trader on $120,000 contributing the full $30,000 saves around $11,100 in tax — and the money goes into their own retirement.
Protective clothing — high-vis vests, steel-cap boots, hard hats
Sun protection — sunscreen, sunglasses, sun hats for outdoor workers
Specialist clothing — chef whites, lab coats, theatre scrubs
Cleaning and laundry of the above
Note: ordinary business attire (suits, dresses, shoes) is not deductible, even if you only wear it to work. The ATO is firm on this — corporate clothes have private benefit.
The bad news: most client entertainment is not deductible for sole traders. Lunches, drinks, and events with clients are private expenses in the ATO's view, even if you discussed business.
Premiums on income protection policies held in your own name — fully deductible. (Premiums for life insurance, trauma, or TPD held personally are not deductible.)
Yes. You can use the cents-per-kilometre method (88c/km, capped at 5,000 km per year, no logbook required) or the logbook method (claim the business percentage of all running costs after a 12-week logbook).
Yes. Use the fixed rate method (70c/hour with a record of hours) or the actual cost method (claim a proportion of actual bills based on floor area). You can't double-dip — pick one method per year.
No. GST registration and income tax deductions are separate. Even if you're below the $75,000 GST threshold, you still claim deductions on your individual tax return as a sole trader.
Receipts, invoices, bank statements, logbooks, and any other written evidence of every expense — for five years from the date you lodge the return. Digital records are fine.
Yes. As a sole trader, business losses can generally be offset against other income (wages, investment income) — provided you pass the non-commercial loss tests. If you don't pass the tests, the loss is carried forward to offset future business profits.
This is automatic when you lodge — you don't need to "claim" it as a deduction. The offset reduces your tax payable on net small business income by 16% (capped at $1,000 for FY2025–26).
Almost never. Unless you can demonstrate it's genuinely required for your business (a music reviewer, a streaming media analyst), it's a private expense.
The ATO requires you to keep records for five years from the date of lodgement. Records must be:
In English (or readily translatable)
Showing how the expense was calculated and substantiated
Retained as receipts, invoices, bank statements, logbooks, and diaries
Stored in a way that they remain readable and unaltered
Cloud accounting software like OneBookPlus stores receipts as photos attached directly to expenses, then exports them at tax time. No more shoeboxes, no more lost paperwork.
The $15,000 super contribution sits in Bruno's retirement fund instead of the ATO. After 15% contributions tax inside super, $12,750 lands in his super balance. Combined improvement to his net financial position: roughly $20,000 from a single hour of careful expense review.
OneBookPlus is built for Australian sole traders and small businesses. The platform automatically captures, categorises, and documents every deductible expense:
Receipt capture via mobile — snap a photo, attach to an expense, never lose another receipt
GST tracking on every invoice and expense
Mileage logbook with GPS tracking
Home office hours diary
Asset register and depreciation schedule
Pre-built deduction categories mapped to ATO codes
Tax-ready P&L and expense reports for your accountant or self-lodgement
Most sole traders underclaim every year — not because they're trying to do the right thing, but because they don't know what's deductible and they don't have the records to back up what is.
Start your free OneBookPlus account and let the software capture, categorise, and document every deductible expense across the year. When tax time comes, you'll have a complete, ATO-ready picture of your business — every receipt, every kilometre, every super contribution accounted for.
Don't leave money with the ATO. Claim what's yours.