Business Tax Deductions Australia 2025-26: A Complete Guide for Small Business Owners
Tax deductions reduce your taxable income — which means they directly reduce the tax you pay. For a small business owner in Australia, knowing which expenses are deductible, how to claim them correctly, and what records to keep can make a significant difference to your after-tax position.
This guide covers the full range of business tax deductions available to Australian small businesses in 2025-26. It explains the ATO's rules, the most commonly missed deductions, industry-specific claims, and the mistakes that attract ATO scrutiny.
Trinity Accounting Practice helps small business owners across Sydney and Australia claim every legitimate deduction they are entitled to — and avoid the errors that create problems at tax time.
The ATO's Three Core Rules for Business Deductions
Before diving into specific deductions, it helps to understand the framework the ATO applies to every deduction claim.
Rule 1: The expense must be for your business, not private use. Personal expenses — groceries, private holidays, children's school fees — are never deductible, regardless of how the payment was made.
Rule 2: If the expense is partly business and partly private, claim only the business portion. A phone used 70% for business and 30% personally — you claim 70%. A vehicle used 60% for business trips — you claim 60% of the running costs.
Rule 3: You must have records to prove every deduction. Receipts, invoices, bank statements, logbooks, and tax invoices are all acceptable. The ATO expects you to keep these records for five years from lodgement.
These three rules apply to every deduction listed below.
Motor Vehicle Expenses
Motor vehicle deductions are one of the most valuable — and most incorrectly claimed — deductions for small businesses.
If you use a vehicle for business purposes, you can claim the business-related running costs. These include fuel, oil, registration, insurance, repairs and maintenance, loan interest, and depreciation.
There are two methods for calculating motor vehicle deductions.
The logbook method is the most accurate and typically produces the highest deduction. You keep a logbook for a continuous 12-week period that records every journey — the date, destination, purpose, and kilometres. The logbook establishes your business-use percentage, which is then applied to all vehicle costs for the full year. Once established, the logbook is valid for five years unless your usage pattern changes significantly.
The cents per kilometre method applies to individuals and sole traders for the work-related portion of vehicle use. For 2025-26, the rate is 88 cents per kilometre, up to 5,000 kilometres. This method requires no logbook but limits your claim.
For companies and trusts that own vehicles, only the logbook method applies — not cents per kilometre.
One important point: driving from home to your regular place of business is not a business trip. Commuting is private travel. The deduction applies to travel between business locations, visiting clients, collecting supplies, and other genuine business purposes.
Home Office Expenses
If you genuinely use part of your home for business — whether you are a sole trader working from home, a small business owner managing administration from a home office, or a professional seeing clients at home — you can claim a portion of your home running costs.
There are two methods.
The fixed rate method allows you to claim 70 cents per hour for each hour you work from home. This covers electricity, gas, phone, internet, and stationery. You must keep a record of the hours worked from home — a diary, timesheet, or calendar record is sufficient.
The actual cost method allows you to claim the actual business portion of each expense — electricity, internet, phone, and mortgage interest or rent if you have a dedicated work area. This method requires more detailed records but produces a higher deduction if your home office is a significant dedicated space.
Note that if you use the actual cost method and claim occupancy expenses such as mortgage interest or rent, the ATO may treat part of your home as a place of business — which can affect the main residence CGT exemption when you sell.
For home-based businesses, the ATO's guidance on home-based business expenses is the key reference.
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Wages, Superannuation, and Payroll Costs
All wages and salaries paid to employees are deductible, including base pay, overtime, penalty rates, allowances, and bonuses.
Superannuation contributions paid to employees are also deductible — but only when actually paid to the fund, not when accrued. Contributions must be paid by the quarterly due dates to be deductible in the relevant year. Contributions paid late may lose the deduction for that quarter.
Payroll tax — a state-based tax on wages above the threshold in each state — is also a deductible business expense.
Workers compensation insurance premiums are deductible.
Salary paid to yourself as a sole trader is not deductible — your personal drawings from the business are not wages. If you operate through a company, a salary paid to yourself as an employee is deductible to the company.
The $20,000 Instant Asset Write-Off
The instant asset write-off allows eligible small businesses to immediately deduct the full cost of an asset in the year it is purchased and first used (or installed ready for use), rather than depreciating it over several years.
For 2025-26, the threshold is $20,000 per asset. The law applies to eligible assets purchased and first used or installed by 30 June 2026. For businesses registered for GST, the threshold applies to the GST-exclusive cost. For businesses not registered for GST, it applies to the full cost.
Multiple assets can be claimed — each asset under $20,000 is written off immediately. There is no cap on the number of assets.
Eligible businesses are those with an aggregated annual turnover of less than $10 million.
Assets over $20,000 go into the general small business asset pool and are depreciated at 15% in the first year and 30% in subsequent years.
With the 30 June 2026 deadline three months away, now is the time to plan any equipment, vehicle, or tool purchases to maximise this deduction in your 2025-26 return. For more detail.
Interest on Business Loans and Finance Costs
Interest paid on a business loan is deductible where the funds were used for business purposes. This includes interest on loans to purchase equipment, fund working capital, purchase business premises, or finance stock.
If a loan is used for mixed purposes — partly business, partly personal — only the business portion of the interest is deductible. Maintaining separate business and personal accounts and loans makes this straightforward. Mixing them creates an ongoing apportionment problem.
Loan establishment fees, bank fees on business accounts, merchant fees, and other financing costs are also deductible.
If your business needs to review its finance structure — either to ensure loan interest is being correctly apportioned or to refinance into a cleaner structure — our Nexus Wealth Partners mortgage broking team works alongside the accounting advice to find the best solution.
Rent and Occupancy Costs
Rent paid for business premises — a shopfront, office, workshop, or storage facility — is fully deductible. This includes lease payments, outgoings, and any premises-related costs paid under the lease.
If you lease equipment, the lease payments are deductible as they are incurred.
For property-owning businesses that use part of their private home as business premises, see the home office section above.
Repairs and Maintenance
Repairs to business assets are deductible in full in the year they are incurred. Maintenance to keep assets in working condition is also deductible.
The important distinction is between repairs — which restore an asset to its original working condition — and improvements — which upgrade or extend the life of an asset beyond its original state. Improvements are capital expenditure and must be depreciated, not claimed immediately.
For rental property owners, this distinction is particularly important.
Advertising and Marketing
All costs incurred to promote your business and generate income are deductible. This includes website design and hosting fees, domain name registrations, Google Ads and social media advertising, print and digital marketing materials, business cards, signage, and sponsorships where there is a genuine expectation of business benefit.
Professional Fees
Accounting fees, bookkeeping fees, legal fees for business matters, consulting fees, and other professional services costs are all deductible. Tax agent fees — including the fees you pay Trinity — are deductible in the year paid.
Note that legal fees for capital transactions — such as acquiring a business, drafting a shareholders agreement, or settling a dispute over a capital asset — may need to be treated as capital and added to cost base rather than deducted immediately.
Insurance
Business insurance premiums are deductible. This includes public liability insurance, professional indemnity insurance, business interruption insurance, workers compensation insurance, key person insurance (where it covers a loss of revenue rather than a capital payment), and property insurance on business assets.
Personal life insurance, income protection with a benefit paid as a lump sum, and insurance covering private assets are not deductible.
Phone and Internet Expenses
The business portion of your phone and internet costs is deductible. If you use a single phone for both business and personal purposes, keep a representative four-week record of your usage and apply the business percentage to the full year's costs.
If you have a separate business phone line or internet service used exclusively for business, the full cost is deductible.
Prepaid Expenses
Small businesses with aggregated turnover under $50 million can claim an immediate deduction for prepaid expenses where the service period does not extend more than 12 months beyond the prepayment date. This means prepaying insurance, subscriptions, rent, or professional memberships before 30 June can bring a deduction forward into the current year.
Timing prepayments strategically before 30 June is one of the most accessible year-end tax planning tools available to small businesses.
Bad Debts
If you have a trade debtor that you have genuinely given up on recovering, you can write off the bad debt and claim a deduction. The conditions are that the amount was previously included in your assessable income, you have genuinely decided the debt is uncollectable, and you have written it off in your books before 30 June.
Bad debts can be a meaningful deduction for businesses with significant accounts receivable — particularly in construction, professional services, or any industry where payment disputes are common.
Depreciation and the Small Business Asset Pool
For assets costing $20,000 or more that do not qualify for the instant asset write-off, eligible small businesses pool these assets and depreciate at 15% in the first year and 30% in subsequent years under the simplified depreciation rules.
When the pool balance falls below $20,000 at the end of the year, the entire pool can be written off. This is a further benefit of the simplified small business depreciation system.
The ATO's guidance on simpler depreciation for small business outlines the full rules.
Industry-Specific Deductions
Different industries have deductions specific to their operations. Here are the most relevant for Trinity's client base.
Construction and trades: Tools and equipment (eligible for instant asset write-off), safety gear and PPE, vehicle costs, site costs, subcontractor payments, TPAR-reported expenses, trade licences and renewal fees, and site-specific insurance.
Medical and healthcare: Practice management software, medical equipment, clinical indemnity insurance, CPD and continuing education costs, professional memberships, and the deductible portion of practice vehicle use. Our medical accounting team advises on the specific deductions relevant to different practice types.
Childcare: Education and training costs for staff under the relevant award, childcare software subscriptions, educational materials, food preparation costs (where applicable), and grounds maintenance for outdoor play areas. Our childcare accounting team works with operators on maximising these claims.
Pharmacy: Cost of goods sold (pharmaceuticals, OTC products, consumables), dispensing equipment, pharmacy management software, PBS reconciliation costs, and professional registration fees for pharmacists. Our pharmacy accounting team handles these deductions as a core part of the service.
Property investors: Loan interest, management fees, rates and land tax, insurance, repairs, depreciation, and capital works deductions.
What You Cannot Deduct
Understanding what falls outside the deduction rules prevents ATO issues.
Fines, penalties, and interest charges imposed by government bodies are not deductible. Private or domestic expenses — including personal clothing, home groceries, personal travel, and private entertainment — are never deductible regardless of payment method. Entertainment costs are generally not deductible and may attract Fringe Benefits Tax if provided to employees. GST credits you are entitled to claim separately through your BAS cannot also be claimed as a deduction. Expenses you have already claimed in a prior year cannot be re-claimed.
The ATO's business deductions guidance covers the full framework.
Common Mistakes to Avoid
Over-claiming motor vehicle expenses without a logbook is the most frequent error in small business tax returns. Without a logbook, the ATO can deny the entire vehicle deduction.
Claiming private expenses through the business — such as personal travel, family meals, or private subscriptions — creates ATO risk and may attract penalties.
Missing prepayment opportunities before 30 June. Many small business owners pay renewals and subscriptions in July when they could legitimately prepay in June and bring the deduction forward by 12 months.
Confusing repairs with improvements — particularly for rental property owners — and claiming capital improvements as immediate deductions.
Poor record keeping — not keeping receipts, not maintaining logbooks, and not separating business and personal accounts — makes deductions impossible to support if the ATO asks.
Missing depreciation claims — particularly for businesses with older assets or newly purchased equipment that qualifies for the instant asset write-off.
For more on managing your overall tax position across the year — including PAYG instalments and BAS planning.
Your Business Tax Deduction Checklist for 2025-26
Use this checklist at year-end to confirm you have captured everything.
- Motor vehicle expenses — logbook up to date and covering the required 12-week period
- Home office hours log maintained throughout the year
- All tool and equipment purchases under $20,000 claimed via instant asset write-off
- Interest on business loans — loans used exclusively for business, no mixed use
- All wages and super paid — super paid to fund before quarterly due dates
- Insurance premiums — all business policies included
- Advertising and marketing costs — website, ads, print materials
- Professional fees — accounting, legal, consulting
- Prepaid expenses — annual subscriptions, memberships, insurance renewed before 30 June
- Repairs and maintenance — distinct from capital improvements
- Bad debts — written off in your records before 30 June
- Phone and internet — business portion calculated and supported by usage records
How Trinity Accounting Practice Helps You
Ramy Hanna, Principal of Trinity Accounting Practice, holds Fellow memberships with the IPA, TIA, and NTAA and is a Registered Tax Agent. We work with small businesses, tradies, investors, medical practices, childcare operators, and pharmacy owners to ensure every legitimate deduction is claimed and every ATO rule is followed.
We provide year-round tax planning — not just lodgement — which means we review your deduction position before 30 June, identify opportunities to maximise claims, advise on prepayments and asset timing, and ensure your records are in the shape required to support every claim.
Our bookkeeping team maintains your records throughout the year so the deductions are captured as they occur, not scrambled together in July. Our Xero advisory team ensures your accounting system is correctly categorising expenses in real time.
You can explore all our services at trinitygroup.com.au/services and our industry specialisations at trinitygroup.com.au/niches.
Contact Trinity Accounting Practice
Trinity Accounting Practice
159 Stoney Creek Road Beverly Hills NSW 2209
📞 02 9543 6804
📅 Book online — after-hours and weekend appointments available
Disclaimer
Disclaimer: This article provides general information only and does not constitute financial, legal, or tax advice. Tax deduction rules are subject to change and depend on your specific circumstances. You should seek professional advice tailored to your situation before lodging any claims. Trinity Accounting Practice is a registered tax agent. Contact our team for personalised guidance.
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