Key Takeaways
Most ordinary business costs are deductible, but only for the business use portion—private expenses remain non-deductible even if paid from a business account.
Claiming all allowable expenses can reduce your taxable income, which means you pay less tax. Maximizing deductions for allowable expenses is a legal way for Australian entrepreneurs to pay less tax and retain more of their earnings.
Australian entrepreneurs (sole traders, companies, trusts) must follow ATO rules and keep records for at least five years after lodging their tax return, fulfilling all reporting obligations.
High-value deductions include asset write-offs and depreciation, home office expenses, vehicles and travel, marketing, professional fees, superannuation, and insurance.
Timing matters: some costs qualify for immediate deduction while others are spread over time or depend on when payment is made (e.g., prepaid expenses and super contributions).
Getting personalised advice from a registered tax agent is critical because rules change frequently—including instant asset write-off thresholds and fixed-rate methods for home-based business expenses.
Blockchain accounting Australia is an emerging tool that can streamline business taxation services and improve transparency.
For expert guidance and support with tax deductions and business finances, consider partnering with Smart Digits, a trusted brand specialising in helping Australian entrepreneurs navigate tax obligations efficiently.
What Is a Deduction for Australian Entrepreneurs When you Pay Tax?
A tax deduction reduces your taxable income by subtracting eligible business expenses from your business income. Most expenses that are directly related to earning your assessable income are tax deductible. This means you can reduce the amount of income on which you pay tax by claiming these expenses, but it does not refund the full cost of what you spent.
For example, if you have $120,000 in business income and $30,000 in eligible expenses, you only pay tax on $90,000. At a 30% tax rate, that saves you $9,000 in tax. You can claim a deduction for most expenses incurred in carrying on your business if they are directly related to earning your assessable income. This allows you to claim a tax deduction for a wide range of business costs.
Expenses must be directly related to earning your assessable income. Personal expenses like family dinners or private holidays are not deductible, even if paid from your business account.
Revenue expenses (day-to-day costs like rent and advertising) are generally deductible in the year incurred. Capital expenses (assets like machinery or vehicles) are usually depreciated over time unless eligible for instant write-off.
Who Can Claim Business Tax Deductions in Australia?
Any Australian entrepreneur running a legitimate business can claim eligible deductions, provided they meet the eligibility criteria set by the ATO. This applies whether operating as a sole trader, partnership, company, or trust. Small business entities, including sole traders, can claim tax deductions for business-related expenses that are directly related to earning assessable income. Sole traders and partnerships claim deductions through their individual tax returns, while companies and trusts lodge separate returns.
PAYG employees with side businesses must separate employee deductions from business deductions in their tax return.
Non-residents earning Australian-sourced business income can claim deductions related to producing that income.
Entrepreneurs operating in regulated industries should also be mindful of compliance with the Australian Securities and Investments Commission (ASIC) and ensure their business activities align with the requirements of professional associations relevant to their field.
What You Can and Can’t Claim as an Australian Entrepreneur
You are only able to claim certain business expenses that meet ATO eligibility criteria. The ATO requires that expenses be related to earning assessable income, not private or domestic, and supported by records to be deductible.
Common deductible operating expenses include rent, utility bills, phone and internet bills, office supplies, bank fees, utilities, software subscriptions, advertising, accounting fees, business insurance, wages, and eligible super contributions.
Non-deductible expenses include fines, private expenses, costs related to business premises such as land (except for certain capital works and specific improvements), reimbursed expenses, and most entertainment costs without a clear business purpose.
If registered for GST, you cannot claim the GST portion of an expense as a deduction if you have claimed it as an input tax credit.
To be valid, tax deductions must meet the ATO’s three golden rules: the expense must be incurred in earning your income, it must not be private or domestic in nature, and you must have records to prove it.
Replacement expenses for business assets are also deductible when they relate to maintaining or repairing business equipment, provided they meet the ATO’s criteria.
Apportioning Expenses Between Business and Private Use
Many expenses serve both business and private purposes—like mobile phones, internet, cars, and home offices. You must apportion these costs and claim only the business portion of each expense, meaning only the part that relates to your business activities.
For vehicles, keep a 12-week logbook to determine business use percentage. For phones and internet, calculate business use from bills. For home offices, calculate the workspace as a percentage of your home and factor in hours used for business.
Keep clear documentation like logbooks, bills, and diaries to substantiate claims.
Timing Rules for Deductions you can Claim
The timing of your deduction depends on your accounting method, expense type, and the correct financial year or income year in which the expense occurs.
Under cash basis, expenses are deductible when paid. Under accrual basis, expenses are deductible when incurred.
Operating expenses like rent and advertising are deductible in the financial year or income year they are incurred, even if unpaid by 30 June, if you have a legal obligation.
Capital expenses are depreciated over the asset’s effective life unless eligible for instant write-off.
If an asset is used part-year, deductions are prorated accordingly. Business losses incurred in a previous year can be carried forward to offset income in the next financial year, which may impact your future tax deductions.
Instant Asset Write-Off and Depreciation for Business Assets
Small business entities with aggregated turnover under $10 million can immediately deduct eligible depreciating assets costing less than $20,000 (GST-exclusive) for income years ending 30 June 2025 and 30 June 2026, provided the asset is first used or installed ready for use by 30 June 2026.
Tax depreciation is claimed over time, reflecting the decline in value of fixed assets. Certain small business entities may elect to use simplified depreciation rules to work out their tax depreciation claim for assets above the threshold.
For example, five laptops costing $18,000 each can be written off immediately, but a $40,000 van must be depreciated. If an asset was bought or installed between 7:30pm on the 6th of October 2020 and 30th of June 2023, it may be eligible for the instant asset write-off. If an asset is used for both business and private purposes, you can only claim a deduction for the business portion of the asset’s cost.
Common Deductible Expenses for Australian Entrepreneurs
Most expenses directly related to earning assessable income are tax-deductible for Australian entrepreneurs. Claiming certain business expenses can help you save money by reducing your taxable income.
Day-to-day expenses: rent, utilities, office supplies, software subscriptions, domain registration, website hosting.
Marketing and advertising: digital ads, website design, SEO, printed materials, branded merchandise. Sole traders can claim deductions for marketing, advertising, and promotional costs incurred to promote their business.
Travel and vehicle costs: business travel airfares, accommodation, ride-share, meals while travelling, vehicle expenses using logbook or cents-per-kilometre methods. Sole traders can claim deductions for travel and vehicle expenses related to business travel, including fuel, repairs, and parking.
Professional services: accounting, bookkeeping, legal advice, business consulting, professional memberships and fees paid to professional associations. Payments to professional services such as accountants and consultants are generally deductible for sole traders.
Staff and contractor costs: wages, superannuation, PAYG withholding, WorkCover premiums.
Finance and insurance: interest on business loans, bank fees, merchant fees, business insurance premiums. Sole traders can claim deductions for business insurance premiums as part of their business expenses.
Home Office, Rent and Premises Deductions
Sole traders can claim deductions for home office expenses if they operate their business from home, subject to specific criteria. Home-based entrepreneurs can claim:
Occupancy costs: portion of rent, mortgage interest, council rates, and home insurance for a dedicated business area.
Running costs: electricity, gas, utility bills, cleaning, phone, internet, office furniture depreciation.
For home office expenses in the 2024-25 financial year, the ATO allows a fixed rate of 70 cents per hour worked from home for running expenses, requiring records of hours worked and at least one bill per expense type. The 70 cents per hour fixed-rate method covers electricity, gas, internet, phone, and stationery. It does not include occupancy expenses such as rent or mortgage interest.
Expenses related to business premises, such as rent, utilities, cleaning, and repairs, are deductible. However, costs related to the purchase of land for business premises are generally not deductible, except for certain capital works or specific improvements, which may be depreciated over time.
Bank Fees, Interest, Loans and Business Finance
Managing business debt is crucial for financial stability, and understanding the deductibility of interest and fees related to debt can help Australian entrepreneurs optimize their tax position.
Interest and fees on business loans, overdrafts, and equipment finance are deductible if funds are used for business purposes.
Bank fees, merchant service fees, and payment gateway charges on business accounts are deductible.
When loans are partly for personal use, interest must be apportioned accordingly.
Some borrowing expenses may be amortised over the loan term.
Interest on late tax payments is generally not deductible.
Superannuation Contributions and Insurance for Entrepreneurs
Employer super: Contributions for employees are deductible when received by a complying super fund, not when authorised. Employers have obligations to ensure payments are made to the correct super fund and must meet all legal responsibilities and compliance requirements when claiming deductions.
Personal super contributions: Sole traders and directors can claim deductions for personal contributions up to concessional caps by lodging a valid notice of intent.
Business insurance: Premiums for public liability, professional indemnity, cyber insurance, and income protection (depending on policy) are deductible.
The ATO may increase scrutiny on work-related expense claims and digital reporting accuracy in 2026.
Prepaid Expenses and Year-End Tax Planning
Prepaid expenses for goods or services used within 12 months ending by 30 June next year may be immediately deductible, but you must allocate or apportion these expenses to the correct income year based on the service period they cover.
Examples: prepaid insurance, software subscriptions, professional memberships, rent, and utility bills. Utility bills are eligible prepaid expenses with a service period of 12 months or less, which can impact allowable deductions for the financial year.
Larger or longer-term prepayments may need to be spread over the service period.
Use prepayments strategically to manage tax liabilities without harming cash flow. Before starting your tax return, find out what deductions you can claim to maximise your return.
How to Claim Tax Deductions as an Australian Entrepreneur
Sole traders are only able to claim deductions for expenses that are properly documented, and must claim a deduction through their individual tax return business schedule using myTax or a registered tax agent.
Companies and trusts claim a deduction in their separate entity returns.
Maintaining clear, organised records and receipts for every deductible business expense is crucial and essential for small businesses. This includes bank statements, invoices, contracts, logbooks, and home-office records.
The ATO requires you to save a record of your expenses for five years after purchase, either physically or digitally.
Use accounting software to categorise expenses and reconcile transactions regularly.
Staying Compliant on Business Expenses and Maximising Deductions
Maximise deductions within ATO rules to pay less tax and keep more money in your business. Maintaining clear, organised records and receipts for every deductible business expense is essential.
Use separate bank accounts for business transactions.
Keep contemporaneous notes explaining expenses, especially for travel and entertainment.
ATO targets excessive motor vehicle claims, large home office deductions without evidence, and poorly documented related-party transactions.
Working with a registered tax agent helps ensure compliance and maximises deductions. Smart Digits offers expert tax and financial services to help entrepreneurs stay compliant and optimise their deductions.
Review your tax position regularly to identify opportunities and avoid surprises.
Australian Business Year-End Checklist
As part of your end of financial year tax planning Australia and to complete your Australian Business Year-End Checklist, ensure you:
Organise and update your business records for easy access and accuracy.
Review your business performance and set goals for the next income year.
Check insurance coverage to ensure it meets your business needs.
Identify all allowable business deductions Australia and prepare to claim them correctly.
Plan prepaid expenses strategically to maximize deductions.
Consult your registered tax agent or business taxation services for tailored advice.
FAQ: Tax Deductions for Australian Entrepreneurs
Can I claim startup tax deductions in Australia before trading?
Yes, you can claim many pre-commencement expenses as tax deductions, provided your business turnover is under $50 million. These expenses must be directly related to setting up your business and incurred before you start trading.
How should I manage tax reporting if I operate multiple businesses?
If you operate multiple businesses as a sole trader, you must keep accurate and separate records of income and expenses for each business. However, all income and expenses from these businesses are reported together in your individual tax return.
Are client meals deductible as business expenses?
Generally, client meals are not deductible unless they are part of genuine business travel or represent light refreshments provided during a business meeting. Personal or entertainment-related meal expenses are typically non-deductible.
Is it necessary to have a separate business bank account?
While not legally required, having a separate business bank account is highly recommended. It simplifies record-keeping, helps maintain clear separation between personal and business finances, and supports accurate tax reporting and compliance.
How should I prepare for tax time as an entrepreneur?
At tax time, keep thorough records of all business income and expenses, claim eligible deductions, and be wary of scams. Good preparation helps ensure a smooth and stress-free tax process.
Will the ATO increase scrutiny on claims in the future?
Yes, the ATO may increase scrutiny on work-related expense claims and digital reporting accuracy in 2026, so ensure your records and claims are accurate and compliant.
Tax laws change regularly; consult the latest ATO guidance or a registered tax agent.
Incorporating these tax deductions and strategies will help you achieve effective business tax planning Australia-wide and maximize your tax return benefits as a sole trader or small business owner.
