This guide applies to the 2025-26 income year, being 1 July 2025 to 30 June 2026.
If you carry on a business as a sole trader, your business income and expenses are reported in your individual tax return. A sole trader does not lodge a separate business income tax return.
You pay tax on the business’s net taxable profit at your individual tax rates - not simply on the money you withdraw from the business.
This page is primarily for sole traders. Partnerships, companies and trusts have different tax return, distribution and owner-payment rules.
Important FY2026 Changes
FY2026 item | Position for 1 July 2025 to 30 June 2026 |
|---|---|
Position for 1 July 2025 to 30 June 2026 | A$20,000 threshold for eligible small businesses |
Eligibility turnover for instant asset write-off | Aggregated turnover below A$10 million |
Employee super guarantee rate | 12% |
Cents-per-kilometre car rate | 88 cents per eligible business kilometre |
Maximum cents-per-kilometre claim | 5,000 business kilometres per car |
Working-from-home fixed rate | 70 cents per actual hour |
Passenger-car depreciation limit | A$69,674 |
ATO general and shortfall interest | GIC and SIC incurred from 1 July 2025 are not deductible |
Small business income tax offset | Up to A$1,000 for eligible individuals |
Business Income You Must Declare
You must declare all income earned from your business, including amounts received:
by cash;
by bank transfer;
by EFTPOS or credit card;
through PayPal, Stripe, Square or similar services;
through online marketplaces or digital platforms;
in foreign currency;
in cryptocurrency;
through barter or non-cash arrangements;
into a personal bank account;
by another person on your behalf.
Do not report only the net amount left after platform charges, merchant fees or commissions.
Gross income example
A platform collects A$22,000 from customers and deducts A$4,000 in service fees before transferring A$18,000 to you.
Your records should generally show:
Item | Amount |
|---|---|
Gross business income | A$22,000 |
Platform service fees | A$4,000 |
Net bank reciepts | A$18,000 |
Common business income
Business income may include:
sales of goods;
professional or consulting fees;
contracting income;
rideshare fares;
delivery income;
online sales;
commissions;
tips;
referral fees;
government grants;
insurance proceeds;
business interruption payments;
debt recoveries;
income from selling business assets;
business bank interest;
foreign business income.
Provide details of unusual grants or assistance payments. Some grants are taxable and some may be specifically exempt.
Cash or accrual accounting
The timing of business income depends on the accounting method appropriate to the business.
Under a receipts or cash basis, income is generally recognised when received.
Under an earnings or accrual basis, income may be recognised when earned, even though the customer pays later.
The appropriate method should be applied consistently and should produce a substantially correct reflection of the business’s income.
It should not be changed merely to move income between financial years. Please provide details of unpaid customer invoices and amounts received after 30 June where they relate to work completed before year-end.
Records to Provide for Business Income
Depending on the business, provide:
Profit and Loss report for 1 July 2025 to 30 June 2026;
Balance Sheet, where available;
sales reports;
issued invoices;
bank statements;
merchant settlement reports;
platform annual summaries;
cash sales records;
foreign income records;
government grant correspondence;
insurance settlement documents;
debtor reports;
accounting software access or exports.
The Profit and Loss report should reconcile to bank deposits, merchant reports, platform statements and lodged BAS figures.
Business Expenses
A business expense is generally deductible where it is necessarily incurred in carrying on the business to earn assessable income.
You cannot claim an expense to the extent it is:
private or domestic;
capital, unless a specific deduction applies;
reimbursed;
incurred in earning exempt income;
unsupported by records;
a fine or penalty;
a sole trader’s personal drawing.
Where an expense is partly business and partly private, only the business portion is deductible.
Common business deductions
Potential deductions may include:
purchases and materials;
trading stock;
wages and eligible super contributions;
contractor and subcontractor costs;
business premises rent;
electricity and utilities;
phone and internet;
motor vehicle expenses;
tools and equipment;
depreciation;
advertising and website costs;
business insurance;
bank and merchant fees;
accounting and legal fees;
software subscriptions;
licences and registrations;
repairs and maintenance;
work-related travel;
training connected with the existing business;
home-based business expenses.
Every deduction remains subject to the purpose, timing, substantiation and private-use rules.
Purchases, Materials and Trading Stock
If you sell goods, manufacture products or use materials in jobs, your cost of sales may include:
opening stock;
purchases;
direct materials;
freight inward;
manufacturing costs;
closing stock.
Examples include:
timber and fittings used by a builder;
ingredients and packaging used by a food manufacturer;
grocery or retail stock;
hair and beauty products;
canvases and materials used by an artist;
parts incorporated into a customer’s job.
Stocktake at 30 June
A small business using the simplified trading stock rules may choose not to account for the stock movement where the difference between:
opening stock; and
a reasonable estimate of closing stock is A$5,000 or less.
Where the estimated difference is more than A$5,000, a stocktake and closing-stock valuation are generally required. Keep stocktake sheets and evidence supporting obsolete, damaged or slow-moving stock adjustments.
Employees, Contractors and Superannuation
Employees
If you employ workers, provide:
payroll reports;
Single Touch Payroll finalisation;
gross wages;
PAYG withholding;
allowances and bonuses;
leave payments;
employer super contributions;
workers compensation premiums.
For FY2026, the general super guarantee rate is 12%. Super must be paid to the correct fund and by the applicable due date.
Late super can trigger the super guarantee charge, additional administration and loss of the ordinary deduction.
Contractors
A contractor invoice does not automatically remove employment or super obligations. A worker may still be an employee for superannuation purposes where the contract is principally for the worker’s personal labour and skills.
Please provide:
written contracts;
invoices;
ABNs;
payment records;
description of the work;
whether the work could be delegated;
whether materials and equipment were supplied;
whether payment was for hours worked or a specified result.
Taxable Payments Annual Report
Businesses in certain industries may need to lodge a Taxable Payments Annual Report for contractor payments.
Relevant industries include:
building and construction;
cleaning;
courier services;
road freight;
information technology;
security, investigation or surveillance services.
The TPAR is generally due by 28 August following the end of the financial year.
Motor Vehicle Expenses
A sole trader using a car for business may generally choose between:
1. the cents-per-kilometre method; or
2. the logbook method.
A car generally means a motor vehicle designed to carry:
fewer than nine passengers; and
a load of less than one tonne.
Different actual-cost rules apply to motorcycles, trucks, qualifying vans and other vehicles that are not cars for these purposes.
Cents-per-kilometre method
For FY2026, the rate is 88 cents per business kilometre, up to a maximum of 5,000 business kilometres per car.
The rate covers:
fuel or electricity;
registration;
insurance;
servicing;
repairs;
tyres;
depreciation.
You cannot claim these expenses again separately.
You do not need fuel receipts, but you must be able to show how the business kilometres were calculated.
Supporting records may include:
appointment calendars;
job sheets;
delivery records;
invoices;
GPS records;
platform trip records;
diary entries;
odometer readings.
Logbook method
The logbook method allows a deduction for the business-use percentage of actual vehicle expenses.
Keep:
a representative logbook for at least 12 continuous weeks;
odometer readings;
annual total kilometres;
fuel or charging records;
registration;
insurance;
servicing and repairs;
tyres;
lease or finance details;
vehicle purchase invoice.
The business percentage must reflect the vehicle’s actual use. A high business-use percentage does not arise merely because the vehicle has signage, carries tools or is described as a work vehicle.
No logbook
Without a valid logbook, an eligible sole trader may still use the cents-per-kilometre method where business kilometres can be reasonably supported.
Receipts alone do not establish the business-use percentage. Do not create an arbitrary percentage or add an estimated amount for travel between rideshare or delivery jobs without supporting records.
Passenger-car depreciation limit
For a passenger car first used or leased during FY2026, the maximum cost generally recognised for depreciation is A$69,674.
This limit generally applies to a car designed to carry less than one tonne and fewer than nine passengers.
It does not necessarily apply to a qualifying truck, van or utility vehicle that is not a car under the tax definition. Any deduction must still be reduced for private use.
Instant Asset Write-Off
For FY2026, an eligible small business may claim an immediate deduction for the business portion of an eligible depreciating asset where:
aggregated turnover is below A$10 million;
the business uses the simplified depreciation rules;
the asset costs less than A$20,000;
the asset is first used or installed ready for use by 30 June 2026; and
the asset is used for a taxable business purpose.
The threshold applies per asset. The asset’s total cost must be less than A$20,000. It is not enough for the business-use portion to be below A$20,000.
Example - eligible asset
A sole trader purchases a computer for A$12,000 and uses it 80% for business.
Potential deduction: A$12,000 × 80% = A$9,600
Example - asset over the threshold
A sole trader purchases a vehicle for A$28,000 and uses it 60% for business.
Although the business portion is: A$28,000 × 60% = A$16,800 the vehicle does not qualify for the immediate write-off because its total cost is not less than A$20,000.
If the simplified depreciation rules apply, the eligible business portion is generally allocated to the small business pool.
Assets allocated to the small business pool are generally deducted at:
15% in the first income year; and
30% in later years.
GST registration affects whether the relevant asset cost is measured on a GST-exclusive or GST-inclusive basis.
Home-Based Business Expenses
A sole trader who works from home may be able to claim:
additional running expenses;
depreciation of office equipment;
equipment repairs;
a business portion of phone and internet;
cleaning of a dedicated business area;
occupancy expenses in more limited circumstances.
For FY2026, the fixed-rate method is 70 cents per actual hour worked from home.
The rate covers:
electricity and gas;
phone usage;
internet usage;
stationery;
computer consumables.
You may separately claim eligible equipment depreciation and repairs.
Occupancy expenses
Rent, mortgage interest, council rates and house insurance may only be considered where part of the home has the character of a genuine place of business.
Relevant factors include whether the area:
is clearly identifiable as business premises;
is used exclusively or almost exclusively for business;
is not readily suitable for private use;
is the main place from which the business operates;
is used for client or customer visits.
Merely working at a dining table or using a spare bedroom for administration does not automatically permit occupancy claims.
Claiming business occupancy expenses in an owned home may affect the main residence CGT exemption when the property is sold.
Business Travel
Business travel may include:
flights to attend a business conference;
accommodation while temporarily travelling for business;
taxis and public transport;
hire cars;
conference registration;
meals while travelling overnight for business.
The travel must be genuinely connected with the existing business.
Keep:
travel itinerary;
invoices and receipts;
conference agenda;
client meeting records;
business purpose;
travel diary where required;
details of private or family components.
Normal meals are private. Meals may be deductible where the sole trader is travelling overnight for business, subject to the circumstances and records.
If a trip combines business and a holiday, only the business-related portion is deductible. Family travel costs are private.
Training and Professional Development
Training may be deductible where it maintains, updates or improves skills used in the existing business.
Examples may include:
technical updates;
continuing professional development;
industry certifications;
software training used in the business;
safety training;
conferences connected with current services.
Training may be capital or private where it:
establishes a new business;
qualifies the person for a substantially new occupation;
relates to a proposed activity not yet carried on;
is primarily for personal development.
Provide the course outline, invoice and explanation of how it relates to current business income.
Personal Services Income
Income is personal services income where it is mainly a reward for an individual’s personal efforts or skills.
This can affect:
consultants;
IT professionals;
engineers;
medical and allied health contractors;
designers;
accountants;
tradespeople;
other skilled contractors.
If the PSI rules apply, they can:
restrict deductions;
limit payments to associates;
attribute income earned through another entity back to the individual;
affect the small business income tax offset.
Receiving income through an ABN, company, trust or partnership does not automatically prevent it from being PSI.
Please tell us:
who performed the work;
who the clients were;
what percentage came from the largest client;
whether payment depended on producing a result;
who supplied tools and equipment;
who corrected defective work;
whether employees or contractors performed principal work;
whether separate business premises were maintained.
Business Losses
A sole trader business loss is not automatically deductible against salary, wages or investment income.
The non-commercial loss rules may require the loss to be deferred unless:
an exception applies;
the taxpayer satisfies the income requirement and one of the statutory tests;
the Commissioner exercises a discretion.
The four common tests examine:
Test | General threshold |
|---|---|
Assessable income test | At least A$20,000 business assessable income |
Profits test | Tax profit in 3 of the past 5 years |
Real property test | At least A$500,000 qualifying real property |
Other assets test | At least A$100,000 qualifying other assets |
Small Business Income Tax Offset
An eligible sole trader may receive the small business income tax offset.
The offset is generally:
16% of the income tax attributable to eligible net small business income;
capped at A$1,000;
available where the relevant small business has aggregated turnover below A$5 million.
The ATO calculates the offset from the information included in the tax return.
A business loss does not create an offset, and some categories - such as PSI where the person is not conducting a personal services business - may be excluded.
GST and BAS
A business generally must register for GST where its GST turnover reaches or is expected to reach A$75,000.
Registration is compulsory for taxi and ride-sourcing services regardless of turnover.
Food delivery work does not, by itself, create the same compulsory registration rule. The usual GST turnover test generally applies unless another registration rule is triggered.
GST-registered businesses
If registered for GST:
taxable sales are generally reported at G1;
GST payable on sales is reported at 1A;
eligible GST credits are reported at 1B;
salary and wages may be reported at W1;
PAYG withholding may be reported at W2.
Business income and deductions in the income tax return are generally recorded net of GST where the business was entitled to claim the GST credit.
BAS reconciliation
Your annual business records should reconcile to lodged BAS figures.
BAS label | Typical content |
|---|---|
G1 | Total sales |
1A | GST on sales |
1B | GST credits on eligible purchases |
W1 | Total salary, wages and other payments |
W2 | PAYG withholding from payments |
Differences may arise from GST-free sales, input-taxed transactions, private use, asset purchases, timing or accounting adjustments. These should be explained rather than ignored.
Industry-Specific Deductions
Tradies and construction businesses
Potential deductions may include:
materials incorporated into customer jobs;
tools and equipment;
protective clothing and safety equipment;
vehicle and trailer expenses;
commercial vehicle insurance;
public liability insurance;
contractor licence renewals;
site fees;
scaffolding or equipment hire;
union or industry association fees;
subcontractor payments;
accounting software;
phone and internet business use.
Keep supplier invoices, job records, logbooks, subcontractor details and asset purchase records.
Building and construction businesses may also need to lodge a TPAR for payments made to contractors. Ordinary clothing, private vehicle use, fines and unsubstantiated cash payments are not deductible.
Freelance creatives
This may include designers, writers, photographers, videographers, artists, performers and musicians.
Potential deductions may include:
computers and software;
design or editing subscriptions;
cameras, lenses and lighting;
musical instruments and audio equipment;
studio hire;
website hosting and portfolio costs;
printing and materials;
professional reference material;
home-office expenses;
travel to client work or performances;
costumes or props that are not conventional clothing;
professional association or guild fees.
Expensive equipment may require depreciation or simplified depreciation treatment.
Everyday clothing, personal entertainment and general lifestyle expenses remain private.
Consultants and professionals
Potential deductions may include:
professional indemnity insurance;
professional registrations;
software subscriptions;
client travel;
home-office costs;
professional development;
industry publications;
accounting and legal costs;
telephone and internet business use;
contractor or administrative support;
marketing and website costs.
Consultants should pay particular attention to the PSI rules, client concentration, home-office occupancy expenses and contractor classification.
Meals, general networking entertainment and social events are not automatically deductible merely because business contacts attended.
Rideshare drivers
Rideshare drivers must register for GST regardless of turnover.
Please provide the complete annual reports from each platform, including Uber, DiDi, Ola or other operators.
Declare gross fares and consider platform fees separately.
Potential deductions may include the eligible business portion of:
platform service fees;
fuel or EV charging;
registration;
insurance, including rideshare cover;
servicing and repairs;
tyres;
car cleaning;
tolls incurred for business trips;
phone mount and charger;
mobile phone usage;
depreciation or lease expenses;
accounting and bookkeeping fees.
Water, mints or similar passenger supplies may only be claimed where they are genuinely purchased and provided as part of the rideshare activity. Private consumption must be excluded.
Keep:
12-week logbook;
opening and closing odometer readings;
platform trip data;
GPS or kilometre records;
vehicle invoices;
all running-cost records;
GST tax invoices.
Platform “on-trip” kilometres may not capture every business journey, but additional kilometres must be supported by actual records. Do not add an arbitrary percentage.
Food and parcel delivery drivers
Potential deductions may include:
platform fees;
business vehicle, motorcycle or bicycle costs;
insulated delivery bags;
phone mounts;
protective equipment;
commercial insurance;
phone and data usage;
repairs and servicing.
GST registration is generally based on the usual A$75,000 turnover threshold unless the person also provides taxi or ride-sourcing passenger services.
Food purchased for the driver personally remains private.
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Expenses That Are Not Deductible
A sole trader generally cannot claim:
personal drawings;
salary paid to themselves;
private groceries or meals;
private rent or mortgage principal;
family holidays;
ordinary clothing;
traffic or parking fines;
income tax payments;
private super contributions as a business expense;
loan principal repayments;
private vehicle use;
entertainment without a specific deduction;
costs already reimbursed;
unsupported estimates;
capital assets as ordinary expenses where depreciation rules apply.
GIC and SIC incurred on or after 1 July 2025 are also not deductible.
What to Bring to Your Tax Appointment
Please provide:
Profit and Loss report;
Balance Sheet, if available;
business bank statements;
sales and merchant reports;
platform annual statements;
cash income records;
debtor and creditor reports;
stocktake records;
invoices for major expenses;
asset purchase and sale invoices;
vehicle logbook and odometer readings;
vehicle expense records;
loan and lease statements;
home-office hours and expense records;
payroll and STP reports;
superannuation payment records;
contractor payment details;
TPAR records;
BAS copies or accounting-file access;
GST reconciliation;
details of grants and insurance payments;
prior-year depreciation schedules;
details of any private-use percentages.
Records to Keep
Business records should generally be retained for at least five years.
Longer periods may apply to:
depreciating assets;
carried-forward losses;
CGT assets;
loan arrangements;
property;
disputes or ATO reviews.
Keep source documents, not merely totals entered into a spreadsheet.
Final Reminder
A sole trader is taxed on the business’s taxable profit - not on drawings and not merely on bank deposits.
The best result comes from:
declaring all gross income;
claiming every lawful business expense;
separating private costs;