Small Business Tax Deductions in Australia: What You Can (and Can't) Claim

Nobody enjoys paying more tax than they have to. The good news is that the ATO gives small businesses a fair few deductions to work with — you just need to know what they are and how to claim them properly.

Here’s a practical rundown of the deductions most Australian small businesses can take advantage of, and the common mistakes that trip people up.

The golden rule: it must be business-related

Before anything else, understand the basic test. To claim a deduction, the expense must directly relate to earning your business income. It can’t be private or domestic in nature, and you need records to prove it. If the ATO asks — and they do ask — you need to show what you spent, when you spent it, and why it was for business purposes.

Common deductions you should be claiming

Operating expenses. The everyday costs of running your business are deductible. This includes rent for your business premises, utilities, office supplies, cleaning, insurance premiums, and professional memberships. If you pay for software subscriptions, accounting services, or legal advice — all deductible.

Vehicle expenses. If you use a vehicle for business purposes, you can claim those costs. You have two methods: the cents-per-kilometre method (currently 88 cents per km for 2025–26, capped at 5,000 business km per year) or the logbook method, which lets you claim the business-use percentage of all actual running costs. The logbook method usually gives a larger deduction, but requires you to keep a logbook for at least 12 consecutive weeks.

Working from home. If you run your business from home, you can claim a portion of your household running costs. The fixed-rate method gives you 70 cents per hour for every hour you work from home, covering electricity, internet, phone, stationery, and computer consumables. Alternatively, you can calculate actual costs and claim the business-use proportion, but this requires detailed records and a dedicated workspace.

Travel expenses. Flights, accommodation, meals, and transport for business travel are deductible. The trip needs to be primarily for business purposes. If you tag a few personal days onto a business trip, you can only claim the business portion. Keep all receipts and note the business purpose of each trip.

Marketing and advertising. Website hosting, domain registration, social media advertising, business cards, signage, sponsorships — anything you spend to promote your business is deductible in the year you spend it.

Wages and superannuation. Salaries, wages, bonuses, and commissions you pay to employees are deductible, along with the compulsory super guarantee contributions (currently 12% of ordinary time earnings). Contractor payments are also deductible, provided you have the correct documentation.

Professional development. Courses, workshops, conferences, and training that relate to your current business activities are deductible. Self-education is trickier — it needs to have a direct connection to how you currently earn income, not just be generally useful.

Capital expenses and instant asset write-off

Some expenses aren’t fully deductible in the year you buy them — they’re capital expenses that normally get depreciated over time. Think equipment, machinery, furniture, and vehicles.

However, under the instant asset write-off, eligible small businesses can immediately deduct the full cost of qualifying assets. The threshold and eligibility rules change regularly, so check the ATO’s current guidelines before relying on this. It’s one of the most valuable deductions available, but you need to make sure you qualify.

For assets that don’t qualify for an immediate write-off, you’ll depreciate them over their effective life using either the prime cost or diminishing value method.

What you can’t claim

There are some expenses people commonly try to claim that don’t actually qualify. Fines and penalties are never deductible — whether it’s a parking ticket or an ATO late-lodgement penalty. Entertainment expenses are generally not deductible unless they fall under fringe benefits tax rules. Private expenses are off-limits, even if you use the same phone or car for both business and personal use — you can only claim the business portion. And initial costs of setting up a business structure, like company registration fees, aren’t immediately deductible (though they may be deductible over five years as business capital expenditure).

The mixed-use trap

Many expenses are partly business and partly personal. Your phone bill, internet, car, and home office all fall into this category. The ATO expects you to work out a reasonable split and only claim the business portion. A common method is to track your usage for a representative period and apply that percentage going forward.

The mistake people make is claiming 100% of something that’s clearly mixed-use. The ATO’s data-matching capabilities are sophisticated, and overclaiming is one of the fastest ways to trigger an audit.

Record-keeping makes or breaks it

You can only claim what you can prove. The ATO requires you to keep records of all business transactions for at least five years. This means tax invoices, receipts, bank statements, and any calculations used to work out the business portion of mixed-use expenses.

Digital records are fine — in fact, the ATO encourages them. Accounting software that connects to your bank feeds and automatically captures and categorises expenses makes this significantly easier than chasing paper receipts.

Don’t leave money on the table

The most common tax mistake isn’t overclaiming — it’s underclaiming. Small business owners often miss legitimate deductions simply because they didn’t know they could claim them, or because their record-keeping wasn’t good enough to support the claim.

Set up a system that captures every business expense as it happens. Categorise things correctly from day one. When tax time rolls around, you’ll have a complete picture of every deduction you’re entitled to — and you won’t leave a cent on the table.