Most Australian small businesses overpay their tax every single year — not because they're doing anything wrong, but because they don't know what they're entitled to claim. Here's your plain-English guide to every deduction that matters in 2025–26.
You're Probably Leaving Money on the Table
Research suggests Australian small businesses miss an estimated $7,000 or more in legitimate tax deductions each year. That's not money the ATO is hiding from you — it's money you're entitled to claim and simply aren't, either because you don't know the deduction exists, your records aren't good enough to support it, or you're not sure how to code it correctly in your books.
This guide covers every major deduction category available to Australian small businesses and sole traders in the 2025–26 financial year, including some that changed this year. It's written in plain English, and at the end we'll explain why clean bookkeeping is what makes all of it actually claimable.
The ATO's Golden Rule: Three Tests Every Deduction Must Pass
Before we get into specifics, here's the framework the ATO applies to every claim:
- The expense must be directly related to earning your business income — not private or domestic in nature
- If it's mixed use (business and personal), you can only claim the business portion
- You must have records to prove it — receipts, invoices, bank statements, logbooks
That's it. If an expense passes those three tests, you can generally claim it. If it doesn't — or if you can't prove it does — you can't. The ATO is increasingly active in auditing small business claims, so "I'm pretty sure I spent that" doesn't cut it.
Now let's go through what you can actually claim.
1. The $20,000 Instant Asset Write-Off (Extended to 30 June 2026)
This is the biggest opportunity on the table for eligible small businesses right now — and it's one of the most underused.
For the income years ending 30 June 2025 and 30 June 2026, small business entities with aggregated turnover of less than $10 million can immediately deduct the full cost of eligible assets costing less than $20,000.
In plain terms: instead of depreciating a piece of equipment over several years, you write off the entire cost in the year you buy it — reducing your taxable income immediately.
What's eligible:
- Tools and trade equipment
- Laptops, computers, monitors, phones
- Office furniture (desks, chairs, shelving)
- Point-of-sale equipment
- New and second-hand assets both qualify
The key rule that most people miss: The $20,000 threshold applies per asset, not in total. A café owner who purchases a $7,500 commercial blender, a $12,000 espresso machine, and a $6,500 display refrigerator in 2025–26 can write off all three immediately — the total is $26,000, but each individual asset is below the $20,000 threshold.
You also need to ensure the asset is first used or installed ready for use by 30 June 2026 to qualify for this financial year.
Bookkeeping note: Assets need to be correctly coded as capital items (not general expenses) in your Xero file and flagged as instant write-off eligible. This is where getting it right in the books matters — your tax return is only as accurate as your underlying records.
2. Vehicle Expenses
Using your car, ute, or van for business? You can claim it — but you need to do it correctly.
The ATO offers two methods:
Cents Per Kilometre Method
- Claim 88 cents per kilometre for business travel (2024–25 rate; updated annually)
- Capped at 5,000 business kilometres per year
- No logbook required, but you do need to be able to show how you calculated the kilometres
Logbook Method
- Claim the actual business-use percentage of all vehicle running costs — fuel, servicing, registration, insurance, depreciation
- Requires a logbook maintained for a continuous 12-week period that represents your typical business travel
- No annual kilometre cap — often the better option for heavy business vehicle users
If an expense has both business and personal use — like a mobile phone or car — you can only claim the business portion. You need records to prove it.
For tradies and field-based businesses especially, the vehicle deduction is typically one of the largest available — and one of the most commonly underclaimed due to poor record keeping.
3. Home Office Expenses
If you run your business from home — even partially — you can claim a portion of your household running costs.
The ATO's current method allows a fixed rate of 70 cents per hour for every hour you work from home, covering:
- Electricity and gas
- Internet
- Stationery and printer consumables
- Phone usage
To claim this, you need to keep a record of the hours worked from home — a diary, timesheet, or similar log. The ATO no longer accepts a four-week representative diary extrapolated across the full year; they want actual records for the full period claimed.
Alternatively, under the actual cost method, you can claim the precise business-use portion of each expense — but this requires detailed records and apportionment calculations.
If you run your business at your home, or your business is based from home, you can claim the business portion of some expenses, including mortgage interest and electricity. If you sell your home, you may have to pay capital gains tax (CGT) on the business portion and declare it in your tax return.
That last point is worth being aware of if you own your home — claiming mortgage interest as a home office expense can have CGT implications down the track. It's worth discussing with a professional before you go down that path.
4. Employee Costs and Superannuation
If you have staff, your wages and related costs are among your largest — and most fully deductible — business expenses.
You can deduct:
- Wages and salaries paid to employees
- Superannuation contributions — now at 12% of ordinary time earnings from 1 July 2025 (up from 11.5%)
- Workers' compensation insurance premiums
- Payroll tax (where applicable)
- Fringe benefits provided to staff (though FBT rules apply separately)
Critical timing rule: Super must be paid by the due date to be claimed in that financial year. Super contributions paid after 30 June can't be claimed in the year they relate to — only in the year actually paid. This catches a lot of business owners out at EOFY.
Sole Traders — Super Deduction for Yourself
You can't pay yourself a wage (that's not how sole trader tax works), but you can make personal superannuation contributions and claim them as a deduction. If you're a sole trader, you can make personal super contributions and claim a tax deduction for them — a powerful strategy to reduce your taxable income while building your retirement savings. The concessional contributions cap is $30,000 per year (2025–26).
This is one of the most powerful but least-used strategies for sole traders — it simultaneously reduces your tax bill and builds your retirement savings.
5. Professional Services Fees
Every dollar you spend on qualified professionals to help run your business is deductible. This includes:
- Bookkeeping and BAS agent fees — yes, what you pay Girl Friday Australia is fully deductible
- Accounting and tax agent fees
- Legal fees for business matters (not personal legal disputes)
- Financial adviser fees related to your business finances
This is one deduction that's easy to miss simply because people don't think of it — but your bookkeeping costs are a legitimate business expense with a direct line to your tax return.
6. Marketing and Advertising
Everything you spend to promote your business is deductible: Google Ads, Facebook/Instagram ads, and other digital advertising. This also includes:
- Website hosting and domain fees
- Graphic design and branding costs
- Printing (flyers, business cards, signage)
- Sponsorships of local events (where there's a genuine marketing purpose)
- Photography and video production for business use
- SEO and content marketing services
If you're running ads, investing in a new website, or working with a marketing agency, keep all invoices — these are clean, unambiguous business expenses.
7. Insurance Premiums
Business insurance is fully deductible. Common eligible policies include:
- Public liability insurance
- Professional indemnity insurance
- Business interruption insurance
- Workers' compensation (if you have employees)
- Tool and equipment insurance (common for tradies)
- Cyber insurance
- Key person insurance (generally deductible when the policy proceeds would be assessable income)
The important caveat: life insurance premiums taken out personally (not through a business or super fund) are generally not deductible.
8. Bank Fees, Merchant Fees, and Finance Costs
Bank and merchant fees — monthly account fees, PayPal/Stripe transaction fees, EFTPOS terminal charges — are all deductible business expenses, as is interest on business loans and credit facilities.
The condition: the loan or facility must be used for business purposes. If you've mixed personal and business debt in the same account or loan, you'll need to apportion.
9. Subscriptions, Training, and Professional Development
Industry association memberships — professional body fees, trade union dues, chamber of commerce memberships — and subscriptions and publications such as industry magazines, journals, and online resources related to your work are deductible, as are training and education costs including courses, workshops, seminars, and conferences that maintain or improve your skills for your current business.
The catch on training: it must relate to your existing business or role, not to entering a new field or career entirely. A tradie upskilling with a new licence relevant to their trade — deductible. The same tradie doing a real estate licence course as a career pivot — generally not deductible.
10. Prepaid Expenses — A Smart EOFY Strategy
This one is particularly useful as 30 June approaches.
Small business entities can immediately deduct the full cost of eligible prepaid business expenses where the benefit period does not exceed 12 months from the date of payment. This allows businesses to accelerate deductions into 2025–26 by prepaying insurance, software subscriptions, memberships, and other annual costs before 30 June 2026.
In practical terms: if your business insurance renews in August, pay it before 30 June and claim the deduction this financial year. Same applies to software subscriptions, professional memberships, and similar annual costs.
If you prepay in June, you can't claim the same expense again next year — but you've brought the deduction forward, which improves your tax position now.
What You Cannot Claim
Just as important as knowing what you can claim:
- Private or domestic expenses — personal groceries, family holidays, home cleaning
- The GST component of an expense if you're GST-registered and have already claimed a GST credit on it
- Fines and penalties — ATO late lodgement penalties, parking fines, infringements
- Capital assets above the instant write-off threshold claimed as immediate expenses (they must be depreciated)
- Your own labour as a sole trader — you can't pay yourself wages and deduct them
- Entertainment — client lunches and entertainment are notoriously difficult to claim and often subject to FBT; get advice before claiming these
Why Your Bookkeeping Determines How Much Tax You Actually Save
Here's the thing that ties all of this together: a deduction you can't prove is a deduction you can't claim.
The ATO doesn't accept "I'm pretty sure I spent around $3,000 on tools this year." They want the receipts, the invoices, the bank records. And in an audit, they'll ask for all of it.
This is why clean, up-to-date bookkeeping isn't just about compliance — it's directly linked to how much money you keep. When every expense is correctly coded in Xero throughout the year, your bookkeeper and tax agent can see exactly what's deductible, what needs apportionment, and where you have opportunities you might be missing.
Businesses that try to reconstruct their records at EOFY in a rush inevitably miss deductions. Businesses with clean, real-time books claim confidently and completely.
What to Do Before 30 June 2026
If EOFY is approaching, here's your action list:
- Review assets purchased this year — anything under $20,000 you haven't yet claimed under the instant write-off?
- Pay outstanding super contributions before 30 June to ensure they're deductible this year
- Prepay eligible annual expenses — insurance, subscriptions, memberships — before the financial year ends
- Reconcile your accounts so your bookkeeper and accountant have clean figures to work from
- Check your home office records — do you have the actual hours logged?
- Update your vehicle logbook if you use the logbook method and it's more than five years old
If your books aren't in good shape heading into EOFY, now is the time to get help — not after 30 June, when the opportunities have already passed.
Frequently Asked Questions
Can I claim my bookkeeping fees as a tax deduction? Yes — professional service fees including bookkeeping, BAS lodgement, and accounting are fully deductible business expenses.
I'm a sole trader. Can I claim the same deductions as a company? Most deductions are the same, though the way they're reported differs. Sole traders declare business income and expenses in their individual tax return rather than a company return.
Do I need original receipts, or are digital copies okay? Digital copies are acceptable to the ATO. Scanning receipts and storing them in your Xero file or linked cloud storage is perfectly fine — and far better than a shoebox you'll lose.
What if I've missed deductions in previous years? In most cases, you can amend prior year tax returns — typically up to two years for individuals and small businesses. Speak to a registered tax agent about what's possible for your situation.
Getting Your Deductions Right Starts With Getting Your Books Right
You can read every guide ever written about tax deductions, but if your bookkeeping is behind, messy, or incorrectly coded — you'll still miss money that's legitimately yours.
Girl Friday Australia helps small businesses, sole traders, and tradies across Australia keep their books accurate and up to date all year round — so that when EOFY rolls around, there's no scramble, no guesswork, and no money left on the table.
✅ Registered BAS Agent ✅ Xero Certified Advisor & Gold Partner ✅ 20+ years experience with Australian small businesses ✅ 100% remote, serving clients nationwide ✅ No lock-in contracts
Get a free quote or book a discovery call — and head into EOFY with clean books and a clear picture of what you're entitled to claim.
This article is general information only and does not constitute tax advice. Tax outcomes depend on your individual circumstances, business structure, and current ATO rules. Always consult a registered tax agent or accountant for advice specific to your situation.
Girl Friday Australia provides bookkeeping, BAS lodgement, payroll, EOFY preparation, and business admin support to small businesses, sole traders, and tradies across Australia.