Sole Trader Tax Deductions 2026-27: Practical ATO List

Tax time hits sole traders in two ways. There is the genuine upside, because the ATO offers plenty of deductions that can reduce your taxable income, and there is the mild panic that comes with wondering whether your receipts will survive an audit. Most of that panic disappears once you know which categories apply to a business like yours and what you need to prove each one.

This is a practical list for the 2026-27 income year, built from ATO guidance and accounting industry commentary. It is general information, not tax advice, and it is not a substitute for a registered tax agent who knows your situation.

What actually makes an expense deductible

As a sole trader, you and the business are the same entity for tax purposes. Your business income goes on your personal return, and so do your business deductions. In plain terms, a deduction is a business expense the ATO allows you to subtract from your taxable income, which lowers the amount of tax you pay.

The test is whether the expense was incurred in running your business and earning your income. Costs that are private in nature sit outside that boundary. If something gets used for both work and personal life, you generally claim only the business portion, which is why a percentage calculation turns up in so many sole trader claims.

Business.gov.au lists the broad claimable categories as motor vehicle expenses, home-based business costs, business travel expenses, workers' compensation and other business costs. The categories are wide, but the rules inside each one are specific, and that is where claims usually come unstuck.

The practical list for 2026-27

This table gives you the shape of a typical sole trader return. Each row has its own record keeping requirement, so treat the third column as seriously as the first two.

Vehicle and travel deductions

Vehicle and travel expenses are one of the biggest deductions available to tradies and consultants, and one of the most scrutinised. The ATO accepts more than one method for working out the business portion of your car costs, and each method has its own record keeping requirement. Some rely on a logbook, others on a record of kilometres travelled for business.

The trap is treating the total cost of running a ute or van as the claim. Only the business use portion counts, so a vehicle that is also the family car needs a defensible split. Keeping a logbook as you go beats trying to remember your trips in July.

Business travel away from home

Travel for work that takes you away from home, such as an interstate job or a supplier visit, can be claimable. Keep the receipts, but also keep a note of the business purpose. A trip needs a genuine connection to earning your income, and the clearer your explanation, the easier the claim is to defend if questions come up later.

Home-based business and home office costs

If you run the business from a spare room, a shed or the kitchen table, home-based business expenses are on the ATO's list of claimable categories. How much you can claim depends on which method suits your circumstances and how the space is used, so the answer is not the same for everyone.

Lodgya's free work-from-home calculator, built around the 70 cent fixed rate option, is there to give you a quick estimate before you sit down with your accountant. Treat the number as a starting point and confirm the method you use each year, because the rules and rates are set by the ATO and can change.

Records for home-based claims

• Bills showing the running costs of the home, such as power and internet.
• Your calculation of the business percentage and how you arrived at it.
• A simple floor plan or note describing the area used for work.
• Dates for any period where your usage changed during the year.

Day to day running costs people forget

Small, boring expenses add up across a year, and they are the easiest to overlook because nobody keeps a folder labelled stationery. Office stationery and similar admin costs are on the list of common business deductions. So are wages and salaries paid to employees, and workers' compensation premiums taken out for your staff.

If you employ people, the payroll side matters as much as the deduction side. Wages, super and workers' compensation need clean records, because these expenses are large enough that an accountant will want to see the paperwork behind them.

Tools, equipment and asset write offs

Tools of trade and equipment bought for the business are commonly claimed. Smaller items are usually straightforward. Bigger purchases, like a work van or a serious piece of machinery, are where accountants start talking about instant asset write offs and depreciation. Those rules determine whether you claim a large chunk in one year or spread the cost across several.

Eligibility and thresholds for asset write offs change, and they are set by the ATO, so check the current position for the 2026-27 year or hand the question to your accountant. The Reddit and ATO community threads on this topic show how often sole traders assume they can claim a vehicle or asset in full, only to find the treatment depends on the rules in force that year.

The expenses that trip people up

Entertainment expenses and traffic fines appear on accountants' lists of things to watch for at tax time. A fine for a traffic infringement is not a deductible business cost. Entertainment needs a close look before you claim it, because the treatment depends on the circumstances. If you are unsure, ask a registered tax agent rather than guessing and correcting later.

Private expenses land in the same bucket. Groceries, personal clothing that is not a uniform or protective gear, and family holidays are not business costs, even if you thought about work while spending the money.

Records decide how much you actually get back

A bank statement proves money left your account. It does not prove the expense was business related, and that distinction is where claims fall apart. Receipts, invoices, logbooks and short notes are what turn an estimate into a defensible deduction.

A record keeping routine that survives tax time

1. Photograph or scan receipts within a day or two, before they fade or vanish.
2. Log business trips while the details are fresh, including the reason for the trip.
3. Note the business purpose on larger purchases, not just the amount.
4. Reconcile your records against your bank account before you lodge, so nothing is claimed twice.

Lodgya was built in Melbourne by founder Omar Mulabegovic to solve the shoebox of receipts problem, so this part is the whole point. The browser-based business tracker handles a mileage logbook, GST and BAS reconciliation and CSV imports, and there is a free tier that covers 10 entries, with paid plans at $4.95 and $9.95 per month if you want more room. Free ATO-focused calculators and a 2026-27 tax calendar sit alongside it for people who just want a number quickly.

First year as a sole trader?

The ATO's online community forum regularly fields questions from people filing their first return as a sole trader and asking what they can claim. The honest answer for a first year is that a conversation with a registered tax agent is usually worth the fee, especially if you have bought equipment, a vehicle or set up a home workspace. Their advice is specific to you, and this article is general information only.

Frequently Asked Questions

What expenses can a sole trader claim?

Sole traders can claim deductions for business expenses including motor vehicle costs, home-based business expenses, business travel, workers' compensation premiums, wages and salaries paid to staff, office stationery and tools of trade. The expense has to relate to earning your business income, and any private portion needs to be removed before you claim it.

Do I need a logbook for car expenses?

If you claim motor vehicle costs using the logbook method, you need a logbook recording your business trips plus odometer readings. Other methods rely on kilometre records instead. Whichever method you choose, your records have to support the business percentage you claim, so keep them as you go rather than reconstructing them months later.

Can I claim home office costs if I work from home?

Home-based business expenses are on the ATO's list of claimable categories, so if you run your business from home you can usually claim something. How much depends on which method suits you and how the space is used. Keep your bills and a note of how you calculated the business portion.

Are traffic fines tax deductible?

No. Traffic fines show up on accountants' lists of expenses to watch for at tax time precisely because they are not a deductible business cost. Paying a fine is a consequence of breaking the law, not a cost of earning income. Entertainment expenses also deserve close attention before you claim them.

What records should I keep for my deductions?

Keep receipts, invoices and bank statements for everything you plan to claim, and add a short note explaining the business purpose. A bank statement alone shows that a payment happened, not why. For vehicle and home office claims, keep a logbook or a record of how you worked out the business percentage. Good records are what make a claim stand up.