ABN Tax Deductions: What Can a Sole Trader Claim?

Sole traders can generally claim expenses incurred in running their business, provided the expense is directly connected with earning business income and supported by appropriate records.

That sounds simple. Tax deductions usually do—right up until someone tries to claim their weekly groceries because they ate them while answering emails.

The central rule is straightforward:

• the expense must relate to operating your business;

• you can only claim the business portion of a mixed-use expense; and

• you must have records supporting the claim.

The ATO allows deductions for most expenses incurred in carrying on a business where they are directly related to earning assessable income.

What Is an ABN Tax Deduction?

An ABN tax deduction is an allowable business expense included in your individual tax return as a sole trader.

Your assessable business income is reduced by your allowable business deductions to calculate your net business profit or loss.

For example:

You are not receiving the entire $15,000 back.

The deductions reduce the income on which your tax is calculated. The actual tax benefit depends on your overall taxable income and tax position.

Buying something unnecessary purely to obtain a tax deduction remains buying something unnecessary. The tax system does not reimburse bad business decisions.

The Three Rules for Claiming Sole-Trader Expenses

Before claiming an expense, apply these three tests.

1. Was the Expense Connected to Your Business?

The expense must have a genuine connection with operating the business and earning assessable income.

Common examples include:

• advertising your services;

• buying materials used on customer jobs;

• paying for business insurance;

• maintaining a business website;

• using accounting or invoicing software;

• paying merchant and payment-processing fees; and

• engaging a subcontractor to complete business work.

The fact that an expense was paid from a business bank account does not automatically make it deductible.

Conversely, paying a legitimate business expense from a personal account does not automatically prevent it from being claimed. What matters is the purpose of the expense and whether you can prove it.

2. Was Any Part of the Expense Private?

If an expense was partly business and partly private, you must separate the two and claim only the business portion.

For example, if your mobile phone costs $1,200 for the year and reasonable records show that 70% of its use was business-related, the potential business deduction would be $840.

The remaining $360 is private and cannot simply be invited into the tax return because the larger number looks more satisfying.

This apportionment rule commonly applies to:

• mobile phones;

• internet services;

• motor vehicles;

• computers;

• home electricity;

• equipment;

• insurance; and

• travel.

The ATO requires mixed expenses to be divided so that only the business-related portion is claimed.

3. Do You Have Evidence?

A deduction must be supported by records showing what you purchased, how much you paid, when the expense occurred and how it related to your business.

Useful records may include:

• receipts and tax invoices;

• bank and credit-card statements;

• supplier invoices;

• contracts;

• logbooks and travel records;

• diary calculations;

• usage records; and

• calculations showing how private use was excluded.

A bank statement may show that money was spent, but it does not always establish what was purchased or why it was business-related.

Most business records must generally be kept for five years. The retention period ordinarily begins when the record was prepared or obtained, or when the relevant transaction was completed.

GoTax does not routinely need to see or store every receipt. You must retain your own records, although a tax accountant may ask to see evidence where a deduction is uncertain.

Common ABN Tax Deductions

The deductions available depend on what your business does. A landscaper, rideshare driver and freelance graphic designer will not have identical expenses, despite all three having an ABN.

Common categories include:

This is not an automatic shopping list.

Each expense still needs to satisfy the connection, private-use and record-keeping tests. The ATO identifies staff wages, marketing and business finance costs among the common costs that a business may be able to deduct.

Can You Claim Phone and Internet Expenses?

You can generally claim the business-use portion of phone and internet expenses.

Where the service is also used privately, you need a reasonable method for calculating the business percentage. This may involve reviewing an itemised bill or keeping a representative usage diary.

Claiming 100% because the phone occasionally rings after 5 pm is not a calculation.

You should retain:

• invoices for the service;

• evidence of payment;

• your business-use calculation; and

• any usage diary or sample period relied upon.

Can You Claim Car Expenses?

A sole trader may be able to claim eligible motor vehicle expenses for business travel.

The correct treatment depends on matters including:

• the type of vehicle;

• whether you use the cents-per-kilometre or logbook method;

• the kilometres travelled for business;

• your business-use percentage; and

• the records retained.

Private travel and ordinary travel between home and a regular workplace will not necessarily become deductible merely because you have an ABN.

Car deductions also interact with depreciation rules. For example, where the cents-per-kilometre method is used, you cannot separately claim the vehicle’s depreciation because it is already covered by the rate.

A later guide in this series will deal specifically with sole-trader car claims and the records required.

Can You Claim Home-Office Expenses?

A sole trader operating from home may be able to claim certain running expenses, including the business portion of costs such as electricity, internet and equipment depreciation.

Where part of the home is genuinely set aside as a place of business, some occupancy expenses may also be available. These can include a portion of rent, mortgage interest, council rates and home insurance, depending on the circumstances.

Occupancy claims are not free money. Using part of a home as a business premises can create capital gains tax consequences when the property is sold, even where it is also the owner’s main residence.

This is one area where enthusiastically claiming everything first and considering the consequences later is particularly poor tax planning.

Can You Immediately Claim Tools, Computers and Equipment?

Not every business purchase is claimed in full in the year it is bought.

Day-to-day operating costs may generally be deducted in the year incurred. However, assets that provide an ongoing benefit—such as computers, machinery, vehicles or substantial equipment—may need to be claimed over time through depreciation.

For the 2025–26 income year, an eligible small business using the simplified depreciation rules may be able to immediately deduct the business portion of eligible assets costing less than $20,000 each under the instant asset write-off. Eligibility conditions apply, including the aggregated-turnover test, and the asset must be first used or installed ready for use within the relevant year.

Assets that do not qualify for an immediate deduction may need to be depreciated over time.

The important distinction is between:

• an operating expense, which may be immediately deductible;

• a depreciating asset, which may be claimed over time;

• an asset eligible for an immediate write-off under specific rules; and

• a capital improvement, which may receive different treatment again.

Calling every purchase “equipment” and entering the full amount is not a depreciation method.

What Business Expenses Cannot Be Claimed?

Expenses that are private, domestic or unrelated to producing business income cannot be claimed.

Common non-deductible expenses include:

• private groceries and household costs;

• ordinary clothing;

• personal holidays;

• private motor vehicle use;

• traffic fines and other penalties;

• most entertainment expenses;

• income tax payments;

• repayments of loan principal;

• drawings or money taken from the business for personal use; and

• the private portion of mixed expenses.

The ATO specifically identifies private expenses, traffic fines and most entertainment expenses as costs that cannot ordinarily be claimed as business deductions.

A sole trader also cannot claim a deduction for wages supposedly paid to themselves. You are the business owner, not your own employee. Payments you take from the business are drawings, not deductible wages. The ATO distinguishes payments made to workers from amounts taken by the sole trader personally.

What Happens if You Are Registered for GST?

If you are registered for GST and entitled to claim a GST credit for an expense, you generally claim the income-tax deduction excluding the GST component.

You cannot claim the same GST amount once through your BAS and then again through your income tax return. Admirably ambitious, but no.

If you are not registered for GST, the deductible cost will commonly include the GST paid, subject to the expense otherwise being deductible.

The ATO states that a business cannot claim the GST component as an income-tax deduction where it can claim that amount as a GST credit.

What if Your Deductions Create a Business Loss?

If your allowable business expenses are greater than your business income, the activity may produce a tax loss.

That does not automatically mean the loss can be immediately deducted against salary, wages or other income.

The non-commercial loss rules may require an individual sole trader to defer the loss unless the relevant income requirement, business tests or an available exception is satisfied. A deferred loss may potentially be used against future income from the business activity when the rules allow it.

This is an important distinction:

• the expenses may be legitimate business deductions; but

• the resulting loss may still need to be deferred.

Common Sole-Trader Deduction Mistakes

The most common problems are rarely sophisticated.

They include:

1. claiming the entire cost of mixed business and private expenses;

2. estimating deductions without supporting records;

3. treating capital purchases as ordinary operating expenses;

4. claiming private travel as business travel;

5. deducting the GST component after already claiming a GST credit;

6. claiming personal drawings as wages;

7. assuming a bank statement proves the business purpose;

8. claiming expenses for an activity that was not genuinely operating as a business; and

9. assuming every business loss automatically offsets employment income.

The ABN itself does not make an expense deductible.

The expense must still be genuinely connected to earning business income.

ABN Tax Deduction Checklist

Before entering an expense, ask:

• Did I incur this cost in running my business?

• How did it help produce business income?

• Was any part of it private?

• Have I claimed only the business portion?

• Do I have a receipt, invoice or other evidence?

• Is it an operating expense or a capital asset?

• Have I treated GST correctly?

• Would I be comfortable explaining the calculation to a tax accountant?

A “no” or “not sure” does not automatically kill the claim. It means the expense needs to be reviewed rather than casually thrown into the return and left there to fend for itself.

Lodge Your ABN Tax Return Online

GoTax makes it straightforward to report your sole-trader income and deductions online.

You enter your business details, income and expenses as part of your individual tax return. Once you complete the declaration and finalise the return, one of our qualified tax accountants reviews it before lodgment.

The GoTax ABN tax return costs $140.

You can also read:

• How to Do an ABN Tax Return in Australia in 2026

• Do I Need to Lodge a Tax Return if I Have an ABN?

No appointments. No travel. No waiting rooms. No accountant-sized bill.

Frequently Asked Questions

What can I claim on tax with an ABN?

You can generally claim expenses directly connected with operating your business and earning assessable income. Common examples include advertising, insurance, accounting costs, business phone use, software, tools and eligible vehicle expenses.

Can I claim an expense without a receipt?

You still need evidence supporting the expense and its business purpose. A bank statement alone may not provide enough detail. The type of evidence required depends on the expense and circumstances.

Can I claim 100% of my mobile phone?

Only where the phone is genuinely used entirely for business. Where it is also used privately, you must calculate and exclude the private portion.

Can I claim a laptop immediately?

Possibly. The treatment depends on its cost, business-use percentage, when it was first used and whether you satisfy the requirements for an immediate deduction. Otherwise, the business portion may need to be depreciated.

Can I claim my car because I have an ABN?

No. You must have eligible business travel and use the appropriate claiming method. Private travel remains private.

Can I claim meals while working?

Ordinary meals are generally private expenses. Limited exceptions can apply to qualifying business travel or particular employment and entertainment circumstances.

Can a sole trader pay themselves a deductible wage?

No. Money taken by a sole trader for personal use is a drawing, not a deductible wage paid to an employee.

Does every deduction increase my refund?

No. A deduction reduces taxable income. Its actual value depends on your overall income, tax rate, offsets, tax already paid and other circumstances.

What is the instant asset write-off threshold for sole traders in 2025–26?

For the 2025–26 income year, eligible small businesses using the simplified depreciation rules may be able to immediately deduct the business portion of eligible assets costing less than $20,000 each. Eligibility conditions apply, including the aggregated-turnover test, and the asset must be first used or installed ready for use within the relevant income year.

Can I claim home office expenses as a sole trader with an ABN?

Yes, where you operate from home. You can generally claim the business portion of running costs such as electricity, internet and equipment depreciation. Where part of the home is genuinely set aside as a place of business, some occupancy expenses — including a portion of rent, mortgage interest, council rates and home insurance — may also be available. Note that occupancy claims can create capital gains tax consequences when the property is later sold.

Do I have to separate business and private expenses?

Yes. If an expense was partly business and partly private, you must separate the two and claim only the business portion. This apportionment rule commonly applies to mobile phones, internet services, motor vehicles, computers, home electricity, equipment, insurance and travel. The ATO requires mixed expenses to be divided so only the business-related portion is claimed.

How long do I need to keep business records as a sole trader?

Most business records must generally be kept for five years. The retention period ordinarily begins when the record was prepared or obtained, or when the relevant transaction was completed. Records include receipts, tax invoices, bank and credit-card statements, supplier invoices, contracts, vehicle logbooks, usage diaries and calculations showing how private use was excluded.

What happens if my ABN deductions create a business loss?

If your allowable business expenses exceed your business income, the activity may produce a tax loss. The non-commercial loss rules may require an individual sole trader to defer the loss unless the relevant income test, business tests or an available exception is satisfied. A deferred loss may potentially be applied against future income from the same business activity when the rules allow it.

How much does GoTax charge for an ABN tax return?

GoTax charges $140 for an ABN tax return. This covers your individual income tax return including sole-trader business income and deductions, reviewed by a registered tax agent (TPB registration 25498770) before lodgment. You lodge online at your convenience — no appointments, no travel, no waiting rooms.

About This Article

Written by Mark Walmsley, Chartered Accountant and Registered Tax Agent.