Tax deductions for sole traders: what you can actually claim
Sole traders can generally claim any expense genuinely incurred in running the business. Here are the categories that come up most often.
The general rule, in three tests
A business expense is usually deductible when it passes three tests at once. It was incurred in earning your assessable income, it is not private or domestic in nature, and you have a record that shows what it was. Fail any one and the claim is not available, however obviously business-shaped the purchase felt at the time.
The second test is the one that does most of the work, because very few purchases are cleanly one thing or the other. A phone, a car, a laptop and a room in your house are all used for both, and the rule does not ask you to choose — it asks you to apportion. That is a different and much more answerable question, and the rest of this guide is mostly about how to answer it for each category.
It is also worth knowing what kind of thing a deduction is. A deduction reduces the income your tax is calculated on, so it is worth your marginal tax rate rather than its full amount — a $100 expense does not put $100 back in your pocket. An offset works differently and reduces the tax itself; the difference between a deduction and an offset is worth ten minutes once, because it changes how you read almost every claim.
Apportionment: where the size of the claim is decided
Apportionment means claiming the business share of a mixed-use expense and leaving the private share alone. The share has to be worked out on a reasonable basis and, more importantly, it has to be one you can explain later — the ATO’s objection is almost never to the existence of a claim but to a percentage that appeared from nowhere.
Three bases cover nearly everything. Time, for anything used in sessions: the hours a room or a phone plan is used for work against total use. Distance, for vehicles. And a count, for things bought in quantities where some went to the business and some did not. Whichever you use, write down the method and the period it was measured over, once, and reuse it until something changes.
The trap is the round number. A flat "50% business" applied to every mixed expense in the year is the pattern that invites a question, because no real usage pattern is that tidy across a phone, a car and a room at the same time. Different expenses have different shares, and a set of numbers that vary is both more accurate and easier to defend.
The categories that come up most
Tools and equipment used for the business, software and subscriptions, professional memberships, insurance, bank and merchant fees on business accounts, marketing and website costs, accounting and legal fees, and the training that maintains or improves a skill you already earn from. Stock and materials belong here too if you sell physical goods, though they are counted differently as trading stock rather than as a running cost.
Two categories are worth flagging because they are commonly claimed wrongly rather than commonly missed. Clothing is deductible only where it is protective, occupation-specific or a genuine uniform — ordinary clothes bought for work are private, however strictly the client expects them. And training that gets you into a new field is generally not deductible, while training that deepens what you already do generally is.
What you can claim also shifts with the work itself. A plumber, a rideshare driver, a nurse and a content creator each have a handful of claims that are ordinary in their trade and unusual outside it, which is why the occupation-by-occupation deduction guides exist as a separate set rather than as one list.
Working from home, and the two methods
If you run the business from home, the running costs of the space are generally claimable: electricity and gas for lighting, heating and cooling, internet and phone, and the decline in value of the desk and chair you work at. There are two ways to calculate it, and you choose the one that gives the better result for your circumstances rather than being assigned one.
The fixed-rate method applies a set amount per hour worked from home, covering a defined bundle of running costs in one figure, and requires a record of the hours actually worked there. The actual-cost method works out the real business portion of each cost separately — a floor-area share of energy, a usage share of internet — and needs more evidence but usually produces a larger claim for anyone with a dedicated room and long hours. Whichever you pick, hours or usage have to be recorded as you go; reconstructing a year of them afterwards is neither accurate nor persuasive.
Occupancy costs — rent, mortgage interest, rates, house insurance — are a separate and much more restricted question, and claiming them can affect the main-residence exemption when you later sell; the business space at home tool shows the trade-off with your own figures. That one is genuinely worth asking your accountant about before you claim anything, not after.
Car and travel: logbook or cents per kilometre
Travel between two workplaces, out to a client, or to pick up supplies is business travel. Travel between home and a regular place of work generally is not, which catches people out when the home is also the office — in that case the first trip of the day may well count, because it starts at the workplace.
The logbook method establishes your business-use percentage from twelve continuous weeks of records, and that percentage then applies to your actual running costs for the year: fuel, servicing, registration, insurance and depreciation. A logbook generally stays valid for five years unless your pattern of use changes, so the twelve weeks are a one-off cost that pays for several years of claims.
The cents-per-kilometre method is the lighter option: a set rate per business kilometre, covering all running costs in one figure, capped at 5,000 business kilometres per car per year. It needs no logbook but still needs a reasonable basis for the kilometres claimed — a diary, a route history, something. For anyone driving more than a few thousand business kilometres, the logbook almost always wins, and the twelve weeks are worth the trouble.
Tools, equipment and the second clock
A purchase that will be used for more than one year is an asset rather than a running cost, and it is deducted over time through depreciation rather than all at once. The write-off runs over the asset’s effective life, which the ATO publishes for hundreds of asset types, and you choose between the prime cost and diminishing value methods when you first add it.
Small assets are the exception. Where an asset costs less than the instant asset write-off threshold in force for that income year and your business qualifies, the whole cost can be deducted in the year you start using it. The threshold has moved several times in recent years, so it is one figure worth checking for the specific year rather than remembering — and it is a threshold on the asset, not on your total spending.
The private-use share applies here too, and it applies to the depreciation rather than to the purchase. A laptop used 70% for the business is depreciated in full in the register and claimed at 70% each year, which keeps the asset’s written-down value correct if you later sell it. Keeping the asset entry attached to the bank transaction that bought it, in an asset register, is what makes that reconstructable years later.
Records: what has to exist before you claim
The deduction matters less than the evidence behind it. A record needs to show what was bought, from whom, how much, when, and — where it is not obvious — why it relates to the business. In Australia records generally have to be kept for five years from the date you lodge, and longer for anything supporting an asset that is still being depreciated or that may create a capital gain later. Substantiation is the word for this, and it is the difference between a claim and a hope.
Bank and card statements are useful but incomplete on their own: they prove the money moved and not what it bought, which is exactly the detail apportionment turns on. That gap is why receipts attached to the transactions they back are worth more than the same receipts in a folder, and why mixing personal and business spending on one card is the single biggest reason deductions go missing.
If you are registered for GST, one more rule applies to every figure above: you claim the GST-exclusive amount as a deduction, because the GST portion has already come back to you as a credit on your activity statement. Claiming the full amount in both places is a common and entirely avoidable double count. This is general information, not personal tax advice — check what applies to you with your accountant or the relevant tax authority.
Take it further
One account, two lives, already sorted
Depreciation (decline in value) →Claiming the cost of a big asset gradually over its life.
Logbook method (car expenses) →Claim your car’s real business-use share of running costs.
Instant asset write-off →Immediately deduct an eligible asset instead of depreciating it.
Sole trader →The simplest business structure — you and the business are one.
Common questions
Can I claim my home internet as a sole trader?
Generally yes, for the business-use portion — you would apportion the cost based on how much you use it for work versus personal use. This is general information, not personal tax advice — check what applies to you with your accountant or the relevant tax authority.
Do I need a receipt for every deduction?
You generally need written evidence for claims, though some smaller categories have simplified record-keeping rules. Bank and card statements can support a claim alongside receipts. This is general information, not personal tax advice — check what applies to you with your accountant or the relevant tax authority.
What is the logbook method?
It works out your car’s business-use percentage from a 12-continuous-week logbook, which you then apply to your actual running costs — fuel, servicing, insurance and depreciation.
How do I split a phone or internet bill between business and private use?
Pick a basis you can explain and measure it over a representative period — for a phone, the share of calls, messages and data used for work over about four weeks; for internet, the share of time or devices used for the business. Apply that percentage to the year, write down how you arrived at it, and revisit it only when the pattern genuinely changes. This is general information, not personal tax advice — check what applies to you with your accountant or the relevant tax authority.
Can I claim expenses I paid before the business started earning?
Some start-up costs are deductible and some are not, and the line is about what the spending relates to. Ordinary running costs incurred once the business is genuinely operating are usually claimable even before the first invoice is paid, while certain professional and setup costs have their own rules. Keep every receipt from the start-up period and raise the timing with your accountant, because the treatment differs by expense type. This is general information, not personal tax advice — check what applies to you with your accountant or the relevant tax authority.
Do I claim the GST-inclusive or GST-exclusive amount as a deduction?
If you are registered for GST, claim the GST-exclusive amount, because the GST portion is already recovered as a credit on your activity statement. If you are not registered, you claim the full amount you actually paid, GST included, since none of it comes back to you. Claiming the inclusive figure while also claiming the credit is a double count and one of the more common corrections. This is general information, not personal tax advice — check what applies to you with your accountant or the relevant tax authority.
Sources
- ATO — Businesses and organisations — General deduction rules for business, apportionment of private use, working-from-home and vehicle methods, and record-keeping periods
- Income Tax (Effective Life of Depreciating Assets) Determination 2025 (F2025L01097) — The published effective lives depreciation is calculated over, by asset type
- ATO — GST — Why a GST-registered business deducts the GST-exclusive amount and claims the GST separately
General information computed from published government guidance, not personal tax advice.
More on tax & compliance
A Business Activity Statement (BAS) reports the GST you have collected and paid to the ATO, usually every quarter. Here is what actually happens, step by step.
What “GST treatment” means on your activity statement (and the three codes people mix up)A GST treatment is the code that says what kind of supply a transaction is, and therefore which label on your activity statement it feeds. Three of those codes carry zero GST and still mean different things: GST-free, input-taxed and BAS Excluded. Here is the difference, worked through on real lines from a bank feed.
GST vs VAT: what is the difference?GST and VAT are close cousins — both are consumption taxes added at the point of sale — but the name, rate and rules shift by country.
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