Sole trader tax deductions: what you can claim in 2026–27

A sole trader doesn't have a separate tax return for the business. Your business profit goes into your personal return, alongside any wages or investment income, and is taxed at your personal rates. That makes every legitimate deduction worth your marginal rate: 32 cents in the dollar for most sole traders earning between $45,000 and $135,000 in 2026–27, once the Medicare levy is included.

This guide covers what you can and can't claim, the records the ATO expects, the home office and car methods, the $20,000 instant asset write-off, personal super, the loss and personal services income rules that limit some sole traders, and a worked example with the numbers. If you run a company or trust instead, our guide to small business tax deductions covers the differences.

Sole trader tax deductions at a glance (2026–27)

What can I claim as a sole trader?

You can claim an expense if it was incurred in earning your business income, it isn't private or domestic, and you have a record that proves it. If something is used for both business and private purposes, you claim only the business share. That's the whole test. Everything else is applying it.

Sole trader expenses list: what's usually deductible

What sole traders can't claim

• Drawings. Money you take out for yourself isn't a wage and isn't deductible.
• Private and domestic costs. Groceries, everyday clothing, childcare, your own haircut, the private share of the car and phone.
• Fines and penalties. Parking and speeding fines, ATO penalties and the general interest charge are not deductible.
• Entertainment. Taking a client to lunch or the footy is generally not deductible, and neither is the GST on it.
• Your own income tax and Medicare levy.
• Capital costs claimed in full. A building fit-out, a business purchase or an asset of $20,000 or more is depreciated or added to the cost base, not deducted on day one.

Key point: The $1,000 standard deduction for work-related expenses that starts in 2026–27 applies to salary and wage income only. It doesn't replace business deductions. If you're also an employee, it can apply to your wage income while you claim business costs separately as usual.

What records does a sole trader need to keep?

You need a written record for every expense you claim, kept for five years from when you lodge the return. A bank statement shows you paid; it doesn't show what you bought, so keep the invoice or receipt as well.

If you keep your books in Xero, attach the receipt to the transaction when you code it. That's exactly what the ATO asks for in a review. Our Xero bookkeeping service does this daily for clients who'd rather not.

Can I claim a home office as a sole trader?

Yes. You can claim the business share of the running costs of working from home, and, only if part of your home is genuinely a place of business, a share of occupancy costs such as rent, mortgage interest, rates and home insurance. There are two methods for running costs, and you choose the one that gives the better result each year.

The two methods for running costs

Occupancy costs: only for a genuine place of business

Rent, mortgage interest, council rates, land tax and home insurance are claimable only where an area of the home has the character of a place of business: clearly identifiable as business premises, not readily suited to private use, used almost exclusively for the business, and usually visited by clients. A hairdresser's salon at the front of the house, or a physio's treatment room with its own entrance, are typical. A desk in the spare room isn't.

Watch out: Once part of your home is a place of business, that part can lose the main residence CGT exemption when you sell, even if you never claimed the interest. The ATO says so plainly. Run the numbers before you claim occupancy costs. Our main residence exemption guide explains the partial exemption.

Not sure which method applies to you? Ask us.

How do sole traders claim car expenses?

For a car, a sole trader can use either the cents per kilometre method or the logbook method. For utes that carry a tonne or more, vans and other vehicles that aren't "cars", you claim the business share of actual costs, supported by a logbook or similar record. Travel from home to a regular place of business is generally private; travel between work sites, to clients and to suppliers is business.

The cents per km rate for 2026–27 is set by the ATO's annual determination. The ATO's cents per kilometre page confirms the 5,000 km cap and that only sole traders and partnerships with an individual partner can use it.

Can a sole trader write off a car or equipment?

Yes, if the asset costs less than $20,000 and your turnover is under $10 million: you deduct the business share in full in the year it's first used. Anything costing more goes into the small business pool and is written off over several years.

Writing off a car or ute

A vehicle is rarely written off in full. The $20,000 instant asset write-off applies to the business share of a car only if the car costs less than $20,000. Most work vehicles cost more, so they go into the small business pool: 15% of the business-use share in the first year, then 30% a year. For a passenger car, the cost you can depreciate is capped at the car limit of $69,883 for 2026–27. A ute that carries a tonne or more isn't a car, so the car limit doesn't apply, but the $20,000 threshold still does.

Buying an electric car? Our guide to claiming an electric vehicle for business covers home charging, GST credits and the luxury car tax.

How the instant asset write-off works for sole traders

For 2026–27, a sole trader with aggregated turnover under $10 million can immediately deduct the business share of each depreciating asset that costs less than $20,000, in the year it's first used or installed ready for use. The $20,000 threshold is now permanent law (ATO; Treasury Laws Amendment (Tax Reform No. 2) Act 2026).

• The limit is per asset, not per year. Three $15,000 assets can all be written off.
• If you're registered for GST, the limit is tested on the GST-exclusive price. If you're not registered, it's the full price including GST.
• Assets of $20,000 or more go into the small business pool, and if the pool balance falls below $20,000 at 30 June, you can write the balance off.
• Bought on 28 June but not delivered until 3 July? It belongs in next year.

Our instant asset write-off guide has the timing rules and more examples.

Can a sole trader claim personal super contributions?

Yes, and for many sole traders it's the single biggest deduction available. Because no employer pays super guarantee for you, you can contribute to super from your own money and claim a deduction, as long as you lodge a notice of intent with your fund and get its acknowledgement before you lodge your tax return (and no later than 30 June of the following year).

Two rules trip people up. The deduction can't create or increase a tax loss, so contributing more than your taxable income wastes it. And if you roll the money to another fund before lodging the notice, you can lose the deduction altogether.

Whether super is the right home for your money is a financial product question; a licensed financial adviser can advise you on that. We work out the tax effect and the cap position.

Which rules limit sole trader deductions?

Two sets of rules catch sole traders who otherwise get everything right: the non-commercial loss rules and the personal services income rules.

When can a sole trader not claim a business loss?

If your business makes a loss, you can offset it against your other income (such as wages) only if you pass the non-commercial loss rules. Otherwise the loss is deferred and carried forward until the business makes a profit. Most hobbies-turned-businesses and side businesses with a salary run into this.

You can use the loss this year if your income for these purposes (taxable income ignoring the business loss, plus reportable fringe benefits, reportable super contributions and net investment losses) is under $250,000, and you pass one of four tests:

Primary producers and professional artists with other income under $40,000 have their own exception. If none apply, the ATO can exercise its discretion in limited cases, such as a new business with a long lead time. The ATO's non-commercial losses page sets out the detail, and our non-commercial losses agent works through each test before your return is lodged, for your accountant to confirm.

How personal services income limits sole trader deductions

If most of your income is a reward for your personal skills or effort, such as a contractor working for one or two clients, the personal services income (PSI) rules may apply. If they do, and you're not a personal services business, some deductions are blocked.

Under PSI rules, a sole trader generally can't deduct:

• rent, mortgage interest, rates or land tax for your home
• payments to an associate (such as your spouse) for work that isn't part of the principal work
• super contributions for an associate doing that non-principal work.

You can still deduct ordinary business costs such as tools, insurance, car expenses, travel and accounting fees. PSI income that isn't from a personal services business is also excluded from the small business income tax offset.

You escape the rules if you pass the results test (paid for a result, you provide your own tools, and you fix defects at your own cost) for 75% or more of your PSI, or if less than 80% of your PSI comes from one client and you pass another test, or you obtain an ATO determination. Our page for consultants and agencies explains how this plays out for contractors, and the ATO's personal services income pages have a self-assessment tool.

Worked example: a sole trader's 2026–27 deductions

Hypothetical, rounded, 2026–27 resident rates.

Say Jordan is a landscaper and sole trader, registered for GST, with no other income. Jordan's business earns $180,000 for the year, excluding GST. Jordan drives a ute that carries over a tonne, kept a 12-week logbook showing 80% business use, and contributed $10,000 to super with a notice of intent lodged and acknowledged.

A few things to notice:

• The mower and the super contribution together saved about $5,900 of personal tax ($18,500 at Jordan's 32% marginal rate including Medicare), though the fund pays $1,500 of contributions tax on the super.
• The ute is pooled, not written off, because it cost more than $20,000. Next year the pool deduction rises to 30% of the remaining balance.
• The small business income tax offset hits its $1,000 cap. It's based on net small business income of $93,300; the tax agent fees and super are left out of that figure under the ATO's rules. Our guide to the small business income tax offset explains the formula.
• Without the logbook, Jordan couldn't claim the ute's actual costs at 80%. A ute isn't a car, so cents per km isn't available.

Sole trader tax benefits: how it compares with a company

The main sole trader tax benefits are simplicity, low cost and direct access to losses and personal concessions. You pay tax at personal rates, get the full $18,200 tax-free threshold and the small business income tax offset, can offset a genuine business loss against other income, and have access to the 50% CGT discount and the small business CGT concessions when you sell (with the CGT discount changing from 1 July 2027 for growth after that date, under law passed in 2026).

The trade-offs: no limited liability, no way to split income with a spouse unless they genuinely work in the business, and once profit climbs past about $135,000 the 37% and 45% personal rates outpace the 25% company rate. Our guide to sole trader vs company vs trust has the side-by-side numbers, and our business structures service handles the change if it's time.

Mistakes we see with sole trader deductions

1. Claiming 100% of the car or phone with no record of business use.
2. Estimating home office hours instead of recording them. The ATO doesn't accept an estimate under the fixed rate method.
3. Claiming occupancy costs for a spare room, then losing part of the main residence exemption on sale.
4. Writing off an asset that cost $20,000 or more, or one not delivered by 30 June.
5. Making a super contribution and forgetting the notice of intent, or rolling the money over before lodging it.
6. Claiming a side-business loss against a salary without checking the non-commercial loss rules.
7. Paying a spouse for admin work under the PSI rules, where it isn't deductible.
8. Treating drawings as wages, or claiming the GST component when you're registered and already claimed it on the BAS.

How BPAG helps sole traders

Most of our sole trader clients want two things: every deduction they're entitled to, and nothing that won't stand up if the ATO asks. Our individual tax return service covers the business schedule, and we can keep your books in Xero during the year so nothing is missed at tax time.

Our deduction checklist agent builds a list of likely deductions from your bank feeds and last year's return, and our travel deductions agent works out whether a trip is deductible and what records you need. Your accountant reviews every item, asks you about anything unclear by SMS or email, and signs off the return. The agents draft; a qualified accountant checks and approves before anything is lodged.

If you're starting out, our pricing page shows what ongoing support costs, and our guide to GST registration explains when you need to register.

General information only, current as at 23 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.