Sole trader tax deductions: How to maximise your tax return
What’s a sole trader?
A sole trader is the simplest form of business structure. The owner is legally responsible for all aspects of the business, including any debts and losses.
While a sole trader often works independently, they may still hire employees. As a sole trader, you can use your individual tax file number (TFN) to lodge your tax return for your business income.
The Australian Taxation Office (ATO) taxes sole traders personal income tax rates. The tax-free threshold for sole traders is $18,200.
Sole trader tax deductions: What can business owners claim?
Getting tax deductions as a sole trader is one of the benefits of being self-employed.
A tax deduction is an eligible business expense you can claim to lower your taxable income and, therefore, reduce the amount of tax you pay.
Claiming everything that you’re entitled to may also mean you increase your tax refund at the end of the financial year.
Sole traders can claim various deductions, including:
Advertising and marketing
As a sole trader, you can claim a deduction for any advertising and marketing expenses directly related to your business.
This includes the cost of:
broadcast print and online advertising
market research
photography and video production
promotional materials, such as business cards, flyers and brochures
website design and development costs.
Business computer and laptop
If you use a computer or laptop for your business, you can claim a deduction for the cost of the device and any associated software. You can also deduct the cost of repairs and maintenance. However, if you also use the device for personal purposes, you can only claim for the share of the expenses related to business use.
Business travel
When you travel for business, you can get a tax deduction for your transport, accommodation and meals. This includes any travel within Australia and overseas.
You can also claim the cost of attending conferences, seminars and other business-related events.
Insurance and phone bills
You can deduct the cost of insuring your business and yourself. This includes insurance for your equipment as well as protecting your income in the event of misfortune.
You can also deduct the cost of business-related phone calls and internet usage. However, you can only claim what you use for your business.
For example, you can only claim a percentage of your bill as a business deduction if you use your mobile phone for both work and personal use.
Home office
If you have a dedicated home office, you may be able to claim a deduction for the cost of occupying, running and maintaining it.
This includes:
cleaning
council rates
electricity
furniture and furnishing repairs
house insurance premiums
land taxes
mortgage interest or rent
phone.
Machinery and equipment
Another deductible expense is the cost of machines and mechanical tools or equipment over their effective life, if you bought them for your business.
This includes:
machinery
motor vehicles
computers, tablets and accessories
landline and mobile phones
furniture, carpets, curtains, and more.
These can be items you already own and bring into your business or items you buy.
Motor vehicle expenses
If you use your own vehicle for business purposes, you can claim a deduction for the cost of running and maintaining it.
This includes the cost of:
vehicle registration and insurances
financing costs
petrol and servicing costs, including car washes.
The government allows you to claim a deduction for the vehicle’s depreciation. The maximum value the ATO allows for calculating the depreciation of a car first used or leased in the 2022-23 income year is $64,741.
Use the logbook or kilometres method to determine how much your business can claim.
Office supplies
Another deductible expense is office supplies like stationery, printer ink and paper.
Wages and salaries
If you employ staff, you can claim a deduction for the wages and salaries you pay them.
This includes any superannuation contributions you make on their behalf.
Self-education
If the education and study expenses you incur relate directly to your current business activities, you can claim them as a deduction.
This includes:
accommodation and meals (if the course requires you to be away from home for one or more nights)
allowable travel expenses
conferences
computer expenses
courses
seminars
student services and amenities fees
student union fees
photocopying
textbooks, professional and trade journals.
What expenses are not deductible?
You cannot usually claim a deduction for:
childcare expenses
clothing for your family
entertainment and sightseeing
fines or penalties — such as those related to traffic — imposed by a court or tribunal
money earned from a hobby
the GST part of a purchase if you can claim it as a credit on your business activity statement
travel insurance, passports and visas.
Do I need receipts for my tax deductions?
It’s a good idea to keep all receipts and other documentation relating to your deductions in case the ATO audits you.
If you’re claiming a deduction for business travel, you should also keep a record of your itinerary and any supporting documentation, such as conference registration forms and tickets.
Please note that the ATO recommends keeping receipts for five years after you lodge your tax return.
Simplify your tax with MYOB
By claiming all relevant deductions, you can minimise your tax liability and ensure you’re paying the correct amount of tax. However, it’s not always easy to keep track of all your business expenses, particularly if you’re using Excel spreadsheets to stay across your financials.
By signing up for easy-to-use sole trader accounting software, you can track your income and expenses, scan and store receipts, create and send invoices, manage your tax, accept payments and much more.
Sign up for MYOB and try for free.
Disclaimer: Information provided in this article is of a general nature and does not consider your personal situation. It does not constitute legal, financial, or other professional advice and should not be relied upon as a statement of law, policy or advice. You should consider whether this information is appropriate to your needs and, if necessary, seek independent advice. This information is only accurate at the time of publication. Although every effort has been made to verify the accuracy of the information contained on this webpage, MYOB disclaims, to the extent permitted by law, all liability for the information contained on this webpage or any loss or damage suffered by any person directly or indirectly through relying on this information.
MYOB is not a registered entity pursuant to the Tax Agent Services Act 2009 (TASA) and therefore cannot provide taxation advice to clients. If you have a query concerning taxation, including filing your BAS return or annual tax statements, then you should consult with your accountant or other registered tax adviser.