Tax Guide · 2025–26 Financial Year
Tax Deductions for Small Business Australia — What You Can Claim in 2025–26
Small business owners in Australia can claim a wide range of tax deductions that significantly reduce their taxable income — but only if expenses are correctly identified, substantiated, and reported. This guide covers every major deduction category available to sole traders, companies, partnerships, and trusts for the 2025–26 financial year.
The golden rule for deductions
An expense is deductible if it is incurred in earning assessable income and is not private, capital, or domestic in nature. You must have records to substantiate every claim. The ATO data-matches extensively — overclaiming is one of the most common audit triggers for small businesses.
1. Motor Vehicle & Car Expenses
One of the largest deductions for most small businesses. If you use a vehicle for business purposes, you can claim the business-use portion using one of two methods:
Logbook Method
Keep a logbook for at least 12 continuous weeks to establish your business-use percentage. Apply that percentage to all vehicle running costs — fuel, insurance, registration, servicing, and depreciation. Best for high business-use vehicles.
Cents Per Kilometre Method
Claim 88 cents per kilometre (2025–26 rate) for up to 5,000 business kilometres per year. No logbook required — just a record of business trips. Best for low business-use vehicles.
Note: Travel between home and work is generally not deductible unless your home is a genuine place of business.
2. Home Office Expenses
If you run your business from home, you can claim a portion of your home running costs. Two methods apply:
- Fixed Rate Method (67c/hour): Claim 67 cents per hour for every hour worked at home from 1 July 2022 onwards. Covers electricity, internet, stationery, and computer consumables. You must keep a record of actual hours worked (a diary or timesheet).
- Actual Cost Method: Calculate the actual business-use proportion of all occupancy costs (rent, mortgage interest, rates, insurance) and running costs (electricity, internet, phone). Requires more record-keeping but can produce a larger deduction for genuine home-based businesses.
3. Equipment, Tools & Technology
Business-use equipment, tools, and technology are deductible. How you claim depends on the cost and the depreciation rules in effect for the year.
| Asset Cost | Treatment (2025–26) |
|---|---|
| Under $1,000 | Immediate deduction (low-cost asset pool or instant write-off) |
| $1,000 – $20,000 | Instant asset write-off available for eligible small businesses (turnover under $10M) — full deduction in year of purchase |
| Over $20,000 | Depreciated over the asset's effective life using the general small business pool or prime cost/diminishing value methods |
Computers, laptops, phones, tablets, cameras, and specialist tools all qualify — for the business-use proportion only. The instant asset write-off threshold and eligibility criteria should be confirmed with your accountant each year as they may change with the Federal Budget.
4. Superannuation Contributions
Superannuation is one of the most tax-effective deductions available to small business owners.
- Employer super contributions for employees are deductible — as long as they are paid to a complying super fund before the due date for the relevant BAS quarter.
- Personal super contributions for sole traders — if you are self-employed and not an employee, you can make personal concessional contributions and claim them as a deduction (up to the $30,000 concessional cap for 2025–26, including any unused carry-forward amounts).
- Timing matters — contributions must be paid and received by your super fund before 30 June to be deductible in that financial year.
5. Professional Fees & Subscriptions
6. Marketing & Advertising
All costs of promoting your business to generate income are deductible:
7. Travel & Accommodation
Travel expenses for genuine business purposes are deductible — flights, accommodation, meals (while travelling overnight), taxis, and ride-share fares. Key rules:
- The travel must be directly related to producing assessable income
- If a trip is mixed (business + private), only the business portion is deductible
- Meals are only deductible if you are travelling overnight for business purposes
- Keep itineraries, receipts, and a diary noting the business purpose of each trip
8. Wages, Salaries & Contractor Payments
Amounts paid to employees and contractors for work performed in generating your business income are deductible — provided the payments are genuine arm's-length transactions and properly documented.
- Employee wages, salaries, bonuses, and allowances
- Contractor and subcontractor fees (if not caught by the personal services income rules)
- Payroll tax (for businesses above the state threshold)
- Workers' compensation premiums
9. Rent & Occupancy Costs
Rent on business premises, storage facilities, or shared workspaces used for business is fully deductible. If you rent premises with mixed use (e.g. part office, part warehouse), only the business portion applies. Lease incentives, fit-out costs, and lease-break fees may also be deductible depending on the circumstances.
10. What You Cannot Claim
Equally important — expenses that are commonly claimed but disallowed by the ATO:
- Private or domestic expenses — personal grocery shopping, personal clothing, personal holidays
- Fines and penalties — ATO penalties, parking infringements, court fines
- Capital expenses (unless eligible for instant write-off) — buying a business, purchasing shares
- GST you have already claimed as an input tax credit
- Entertainment expenses in most cases — client lunches, staff entertainment may be subject to FBT
- Personal life insurance premiums (distinct from income protection)
Record-Keeping Reminder
You must keep records for every deduction you claim — receipts, invoices, bank statements, logbooks, and travel diaries. Records must be kept for at least five years from the date you lodge the relevant return. The ATO can and does audit small businesses — having records ready is the only protection against having deductions disallowed and penalties applied.
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