The Rule
The general rule: was it used to earn income?
Under the ATO's general expense rules, you can claim a cost if it was genuinely incurred in earning your business income, and it is not private or domestic in nature. A set of tools bought for a job clears that test easily. A family grocery shop does not, even if you occasionally eat while working.
Plenty of real costs sit in between - a vehicle used for both work and weekends, a home office in a house you also live in, a phone you use for both clients and mates. For those, you claim the business-use portion only, worked out on a reasonable, defensible basis - not the whole bill.
Claimable Categories
What Sole Traders Typically Claim
Materials & tools
- Materials bought for a specific job
- Tools and small equipment under the ATO's instant asset write-off threshold (A$20,000 per asset for 2025-26 - this changes most Federal Budgets, so check the current threshold on ato.gov.au) can be claimed in full, the year you buy them
- Tools and equipment over the threshold are depreciated over their effective life instead
- Safety gear and protective equipment
Vehicle costs
- The cents-per-kilometre method: a flat ATO rate (88 cents/km for 2025-26) covering all running costs, capped at 5,000 business km a year per car
- Or the logbook method: keep a continuous 12-week logbook to establish your business-use %, then apply that % to your actual running costs (fuel, rego, insurance, repairs, depreciation) - a logbook is valid for up to 5 years if your business use stays similar
- Personal trips (the school run, groceries) are not claimable, even in a work vehicle
Choose one method per car for the year and keep whichever records that method requires - the ATO reviews vehicle claims closely.
Home office
- The ATO's fixed-rate method (70 cents per hour for 2024-25 and 2025-26) covers energy, internet, phone, and stationery - multiply it by the hours you actually worked from home, using a record kept as you go (the ATO does not accept an estimate or a 4-week diary)
- You can separately depreciate technology and furniture used for work (laptop, desk, chair)
- Rates are reviewed periodically, so check the current ATO fixed-rate figure before you calculate
Phone & internet
- The business-use percentage of your phone and internet bills - unless you're already claiming them through the working-from-home fixed-rate method above, which bundles them in
- A simple, reasonable estimate is fine - you do not need to itemise every call
Subcontractors
- Payments to subcontractors for work on a job are a direct business cost
- If you're in the building and construction industry (or certain other industries the ATO specifies), you may need to lodge a Taxable Payments Annual Report (TPAR) each year by 28 August, reporting what you paid each contractor - a separate reporting obligation, not something that changes the deductibility of the subcontractor invoice itself
Insurance & voluntary super
- Business insurance - public liability, tools, vehicle, professional indemnity
- As a sole trader you're not legally required to hold workers' compensation insurance for yourself (that only applies once you have employees) - many sole traders choose income protection insurance instead, and deductibility depends on the policy, so check with your accountant
- Superannuation guarantee doesn't apply to yourself either, but voluntary personal super contributions can be tax-deductible if you lodge a valid notice of intent with your fund before you lodge your return
Software & subscriptions
- Invoicing and accounting software (Invio included)
- Cloud storage, design tools, and other software used to run the business
- Website hosting and domain costs
Professional & admin costs
- Accountant and bookkeeper fees
- Bank fees on a business account
- Advertising and marketing spend
- Professional memberships and training directly related to your trade
GST Effect
How GST Registration Changes What You Claim
Not GST-registered
Claim the full, GST-inclusive price as your expense. You have no mechanism to reclaim the GST component separately, so the whole amount you paid is genuinely your business cost.
GST-registered
Claim the GST-exclusive price as your expense, then claim the GST portion back separately on your Business Activity Statement (BAS). Deducting the GST-inclusive amount as an expense as well would double-count it.
Not sure whether you need to register? Read our tax invoice requirements guide for the A$75,000 threshold, or use the GST calculator to split any figure into its GST and ex-GST components.
The Limits
What you cannot claim
- Purely private or domestic spending - groceries, personal clothing, family trips - even if paid from a business account.
- The personal-use share of anything with mixed use - your vehicle, phone, or home office - beyond the business-use portion you can justify.
- Fines and penalties (parking tickets, traffic fines) incurred while on the job.
- Client entertainment - meals, drinks, and recreational entertainment are generally not deductible at all in Australia, with only narrow exceptions.
FAQ
Frequently Asked Questions
What can I claim as a sole trader in Australia?
Broadly, any expense you incur to earn your business income and that is not private or domestic in nature. That covers materials, tools, a business-use share of your vehicle and home office, phone and internet, subcontractors, insurance, and software subscriptions. See the categories above for the detail, and our GST calculator for how GST changes the amount you actually claim.
Can I claim my vehicle if I use it for both work and personal driving?
Yes, but only the business-use portion. Use the cents-per-kilometre method (a flat ATO rate, capped at 5,000 business km a year) for a simpler claim, or keep a continuous 12-week logbook to establish your business-use percentage and apply it to your actual running costs. Purely personal trips are never claimable, even if they happen in a vehicle you also use for work.
Do I need a receipt for every expense?
Generally, yes. The ATO expects you to hold evidence for what you claim - receipts, invoices, or bank statements at minimum, kept for at least 5 years under the ATO's record-keeping rules. A bank statement line alone is weaker evidence than the original receipt or invoice, so keep both where you can.
Can I claim my home office as a sole trader?
Yes, if you genuinely work from home. The ATO's fixed-rate method (70 cents per hour for 2024-25 and 2025-26) covers energy, internet, phone and stationery costs - multiply it by the hours you worked from home, tracked as you go. You can separately claim depreciation on technology and furniture used for work.
If I am not GST-registered, do I claim the GST-inclusive or GST-exclusive amount?
If you are not GST-registered, claim the full GST-inclusive amount as your expense - you have no way to recover the GST separately, so it is genuinely part of your cost. If you are GST-registered, claim the GST-exclusive amount as your expense and claim the GST portion back separately on your Business Activity Statement (BAS) - claiming it twice would overstate your deduction. See our GST calculator to split GST-inclusive figures.
Are entertainment expenses deductible?
Generally, no. Unlike some countries' partial-deduction rules, Australia's entertainment expense rules (Division 32 of the tax law) make most entertainment - client meals, drinks, and recreational entertainment - not deductible at all, even if you discuss business while it happens. There are specific exceptions (for example, some working meals or morning/afternoon tea for staff), so if entertainment is a meaningful cost in your business it's worth checking the detail with your accountant rather than assuming a client lunch is claimable.
Does Invio track my expenses for me?
Yes. Invio's expense tracking lets you log a business expense against one of eight categories (materials, tools & equipment, fuel & vehicle, subcontractor, insurance, phone & internet, software & subscriptions, other), mark whether it's GST-inclusive, and export a financial-year total as a CSV - all free on every plan.
This is general information, not tax advice. Whether a specific cost is deductible depends on your circumstances - check ato.gov.au or ask your accountant before you claim anything you are unsure about.