As a sole trader, every legitimate deduction you claim reduces your taxable income — and because you're taxed at individual marginal rates, the saving can be substantial. The catch is that you can only claim what you've recorded and can substantiate. This checklist covers what's claimable in 2026, the rules that trip people up, and where the ATO looks closely.
How deductions work for a sole trader
A deduction must meet three tests: the expense was incurred in earning your income, it isn't private or domestic in nature, and you have a record to prove it. Get those right and the expense reduces your assessable income dollar for dollar. Mix in private use, and you can only claim the business-use proportion.
Everyday deductions sole traders miss
The big-ticket items are easy to remember. It's the small, recurring ones that get left on the table:
- Software and app subscriptions
- Bank fees and merchant/payment processing fees
- The business-use portion of your phone and internet
- Professional memberships, registrations and licences
- Accounting or bookkeeping software
- Business insurance
- Advertising and website costs
- Bank interest on business loans
- Education and training related to your current work
Home office and motor vehicle — the two big ones
Home office: If you work from home, you can use the fixed rate method of 67 cents per hour (2025–26), which covers electricity, internet, phone and consumables — but you need an actual record of hours worked from home, not an estimate. The alternative actual-cost method can yield more but requires a dedicated work area and detailed records. See the work-from-home expenses guide.
Motor vehicle: If you use your car for business, you can claim using the cents-per-kilometre method (a set rate per business kilometre, capped at a maximum number of kilometres) or the logbook method (your actual business-use percentage of all running costs). The logbook method usually wins for higher business use — see motor vehicle log book requirements.
Assets and the instant write-off
For 2025–26, eligible small businesses with aggregated turnover under $10 million can immediately deduct the full cost of an asset under $20,000 in the year it's first used or installed. Assets above the threshold are depreciated over time. Confirm the current threshold with the ATO before relying on it, as it has changed between years.
Super contributions
As a sole trader you can make personal super contributions and claim them as a deduction, up to the concessional contributions cap ($30,000 for 2025–26). To claim, you must lodge a Notice of Intent with your fund and receive acknowledgement before lodging your return — and the contribution must actually be paid by 30 June.
A quick claim checklist
| Category | Claimable? | Watch out for |
|---|---|---|
| Software / subscriptions | Yes | Business use only |
| Home office | Yes | 67c/hour needs an hours record |
| Motor vehicle | Yes | Logbook or cents-per-km, business % only |
| Phone & internet | Partly | Business-use proportion only |
| Tools & equipment under $20k | Yes | Immediate deduction (eligibility applies) |
| Personal super | Yes | Notice of Intent + paid by 30 June |
| Entertainment / client meals | Mostly no | Generally not deductible |
| Private expenses | No | Never deductible |
| Fines and penalties | No | Specifically non-deductible |
What you can't claim
Private and domestic expenses, the private portion of mixed-use costs, entertainment in most cases, fines and penalties, and anything you can't substantiate. Trying to claim these is exactly what draws ATO attention.
Keep it organised through the year
The reason deductions get missed is that they're reconstructed at tax time from incomplete records. Categorising expenses as they happen fixes that. ReconLink imports your statements and auto-codes recurring vendors so your deductible expenses are captured and categorised all year — not scrambled together in July. The Solo plan suits one self-filing business; see pricing.
Frequently asked questions
Can I claim expenses from before my business made money?
You can generally claim expenses incurred in carrying on your business, including start-up costs, provided the activity is a genuine business. Some start-up costs have specific rules — check with the ATO.
Do I need a receipt for everything?
Keep records for all claims. For GST credits you need a valid tax invoice for purchases over $82.50. For income tax substantiation, keep receipts and records for five years.
Is my own "wage" deductible?
No. As a sole trader you're not an employee of your business, so money you draw for yourself isn't a deductible wage — it's just drawing your profit, which is what you're taxed on.
This article is general information for Australian small business owners, not tax advice. Confirm current rates, thresholds and eligibility with the ATO or a registered tax or BAS agent for your situation.