Introduction
Short answer for Australia: yes, if you're a sole trader. You report business income and eligible deductions in your individual tax return, provided each expense is connected to earning assessable business income and meets ATO requirements.
That link to assessable income is what most sole traders need to get right first.
The catch is structure. A company is a separate taxpayer, a partnership allocates shares of net income, and an employee follows different rules again. Mixed personal and business spending adds another layer.
This guide covers deductible expenses, personal-card purchases, years with no income, private-use apportionment, records, capital assets and the $20,000 instant asset write-off. Always check the ATO's rules for the relevant tax year before lodging.
Key Takeaways
- Sole traders claim eligible deductions in their individual return; companies claim in their own return.
- Only the business portion of a mixed-use cost is claimable.
- A personal card doesn't block a deduction if the purchase is documented and recorded properly.
- Having no income does not make every expense deductible; hobby and loss rules still apply.
Who Can Claim Business Expenses on an Individual Tax Return?
Sole traders and individual tax returns
A sole trader reports business income and deductions in the individual return, through the supplementary section and the Business and professional items schedule. For 2025-26, business income and expenses go in item P8. The net result then flows to question 15 B (primary production) or 15 C (other business).
A deduction reduces taxable income. It isn't a dollar-for-dollar refund. A $1,000 expense saves you tax at your marginal rate, not $1,000.
Partnerships, companies, trusts, and directors
- Partnerships: the partnership calculates net income or loss, and each partner reports their share (question 13). Partners shouldn't also claim the same expense personally.
- Companies: a company is a separate taxpayer lodging its own return. A director can't simply put company costs on a personal return.
- Trusts: trust-level expenses and distributions need structure-specific treatment. Check current ATO guidance.
The Australian deductibility test
Under section 8-1 of the ITAA 1997, an outgoing is deductible when it's incurred in producing assessable income, or necessarily incurred in carrying on a business for that purpose. Capital, private and domestic outgoings are excluded.
In practice, three things must line up:
- A sufficient connection to earning assessable income
- No private or domestic character
- Records that support the claim
Deductions are also separate from tax offsets, GST credits and reimbursements. Don't claim the same cost twice through different mechanisms. If a client or employer reimbursed you, there's usually nothing left to deduct.
Employees versus contractors
Employees claiming work-related expenses follow different rules from sole traders. An employer reimbursement can remove the claim.
Receiving an invoice or contractor income doesn't determine the tax treatment on its own. The actual working arrangement and structure matter.
Which Business Expenses May Be Deductible in Australia?
Common operating expenses
Typical examples, with the condition to check:
- Software and subscriptions: business use only; apportion if shared with private use
- Advertising: must promote the business
- Accounting and legal fees: business-related advice, not personal matters
- Office supplies: generally deductible when incurred
- Business insurance: cover for business risks
- Rent: business premises, or eligible home occupancy (see below)
- Utilities: business share only
- Bank charges: on business accounts
- Contractor payments: keep invoices, and check withholding and GST obligations
- Business travel: genuine business purpose, not commuting
If an item has an enduring benefit, it may be a capital cost rather than an ordinary expense.
Home-based business expenses
Two categories, two tests.
Running expenses include extra electricity, cleaning, phone and internet, stationery and equipment depreciation. These can qualify without a dedicated place of business, but only for business use.
Occupancy expenses cover mortgage interest, rent, council rates, land tax and house insurance. The area must have the character of a place of business:
- Identifiable as a work space
- Not readily suitable for domestic use
- Used exclusively or almost exclusively for business, or regularly visited by clients
Working at home alone isn't enough.
Two trade-offs apply:
- Personal services income rules may restrict occupancy claims
- A qualifying business area can create a CGT consequence when you sell the home
Don't borrow employee working-from-home rules. They differ.
Vehicles, travel, and meals
For cars, sole traders can use two methods:
| Method | Basis | Records |
|---|---|---|
| Cents per km | 91c/km in 2026-27; 88c in 2025-26, max 5,000 business km per car | Evidence of how you calculated the kilometres, such as a diary |
| Logbook | Actual costs × business-use percentage | At least 12 continuous weeks, valid five years, plus odometer and expense evidence |
The cents-per-km rate already includes registration, fuel, servicing, insurance and depreciation. Don't add them again.
Home-to-work travel is private, unless you run a home-based business and the trip is for business. Exclude private holidays, sightseeing and family members' costs.
Meals qualify where business requires an overnight absence and you have a permanent home elsewhere. Trips of six or more consecutive nights need a travel diary.
Assets, depreciation, and the instant asset write-off
Equipment, vehicles, computers and furniture usually lose value over time, so you generally deduct them over their effective life instead of all at once.
The exception is the instant asset write-off. The ATO confirms the $20,000 threshold applies for 2025-26 and is now law as a permanent measure from 1 July 2026. Key conditions:
- The asset must cost less than $20,000. Exactly $20,000 fails.
- Your aggregated turnover must be below $10 million, and you must use simplified depreciation.
- New and second-hand assets can qualify, subject to exclusions.
- Claim in the year the asset is first used or installed ready for use, not just bought.
- Test the full cost before apportioning. A low business-use percentage can't rescue an over-limit asset, and you deduct only the business portion.
The ATO's example: a sole trader immediately deducts a $4,500 welder used only for business, plus a $19,000 bucket installed ready for use that year.
Expenses that generally can't be claimed
- Private groceries and ordinary clothing
- Personal entertainment
- Fines and penalties, including traffic fines
- The private portion of mixed-use costs
- Personal drawings
- Costs already reimbursed or claimed elsewhere
Being useful to you, or paid from a business account, doesn't make a cost deductible.
Personal Cards, Mixed-Use Costs, and Years With No Business Income
Paying a business expense with a personal card
The payment method rarely decides deductibility. A genuine business purchase on a personal card can still qualify if it meets ordinary deductibility tests.
Keep the receipt and record:
- Supplier and date
- Amount
- Business purpose
- GST treatment, where relevant
- Any private-use portion
Depending on the entity, the bookkeeping entry may be an owner contribution, an owner-paid expense or a reimbursement. Never record it as both a personal deduction and a business reimbursement.
Mixed personal and business use
Work out a reasonable business-use percentage for vehicles, phones, internet, home offices, equipment and subscriptions. Support it with evidence, not guesses:
- Mileage logs and usage records
- Floor-area measurements for home offices
- Invoices and itemised bills
- Short written notes on business purpose
No business income or a business loss
A genuine business can have deductible expenses before it earns revenue. A hobby can't. Lack of revenue alone does not settle the question.
If you have a loss, the non-commercial loss rules decide whether it offsets other income. For 2025-26 and 2026-27, the income requirement is income below $250,000 (excluding the net business loss). You must also pass at least one test:
- At least $20,000 in assessable activity income
- Profit in three of the last five years
- At least $500,000 in real property used on a continuing basis
- At least $100,000 in other qualifying assets
Don't confuse the $250,000 income cap with the $20,000 activity-income test. Exceptions exist, including primary production and professional arts activities with unrelated income under $40,000, plus Commissioner discretion. Otherwise, losses are generally deferred to a later year.
Start-up costs incurred before the business begins can also face different timing rules and capital treatment.
How to Document and Claim Business Expenses Correctly
Build an audit-ready expense record
Keep:
- Tax invoices and receipts
- Bank and card statements
- Contracts and invoices you've issued
- Vehicle logbooks and travel records
- An asset register
- Home-office calculations
- Notes explaining business purpose
Most records must be kept for five years from preparation, receipt or completion of the transaction, whichever is later. Asset records generally stay relevant while you hold the asset and for five years after disposal. Carried-forward loss records may need longer. Keep digital copies readable, backed up and linked to the transaction.
Separate business and personal finances
Use a dedicated business account or clearly marked categories, even if you occasionally pay by personal card. Regular reconciliation flags private portions, owner contributions, reimbursements, GST credits and duplicated entries.
Report expenses in the right place
Sole traders include business income and expenses in the individual return. Companies, partnerships and trusts report differently. Keep ordinary expenses, capital assets, depreciation, cost of sales, wages, contractor payments and GST amounts separate, following current ATO instructions for the year.
Use a repeatable monthly process
Record each transaction when it happens, categorise consistently, review private use and reconcile monthly. Reconstructing a year of spending in July is where mistakes creep in.
Before lodging, check:
- Business connection
- Correct tax year
- Private apportionment
- Capital versus operating treatment
- Supporting evidence
- GST treatment
- No double claim
When to obtain professional review
Get tailored advice if you have:
- Multiple entities or cross-border income
- GST registration or significant asset purchases
- Home occupancy claims or contractor arrangements
- A business loss
Consider VJM Global's accounting outsourcing, bookkeeping, tax compliance and advisory support if you need help maintaining accurate records and preparing compliant accounts. No adviser can promise a particular deduction or ATO outcome.
Common Mistakes and When Professional Help Is Useful
Don't import US rules. Form 1040 Schedule C, US meal limits, mileage figures and home-office methods don't apply in Australia. Use ATO sources for every threshold and year-sensitive claim.
Common mistakes include:
- Claiming private expenses in full
- Treating company expenses as personal deductions
- Failing to record business purchases made on a personal card
- Claiming an asset as an ordinary expense
- Claiming the full GST-inclusive amount when a GST credit is also claimed
A tax professional can help with:
- Separating a genuine business from a hobby
- Testing loss restrictions
- Reviewing entity treatment
- Setting up a records process
They can't guarantee every cost is deductible.
Frequently Asked Questions
Can you deduct business expenses from personal income?
A sole trader can claim eligible business expenses in their individual return. Company expenses generally belong to the company, and private costs aren't deductible.
Can I write off business expenses that I paid with a personal card?
Often yes. The expense must be business-related, documented, correctly recorded and reduced for any private use.
Can I deduct business expenses if there is no business income?
A genuine business may have deductible expenses before earning revenue. Hobby rules and non-commercial loss provisions can restrict or defer the loss.
What is the $20,000 instant asset write-off?
It lets eligible small businesses (turnover under $10 million, using simplified depreciation) immediately deduct the business portion of an asset costing less than $20,000. It's now permanent from 1 July 2026. Confirm eligibility with the ATO.
What are 10 examples of expenses?
Advertising, software, accounting and legal fees, office supplies, insurance, rent, utilities, contractor payments, business travel and eligible asset deductions. Each depends on business purpose and records.
