Tax Deductions for Sole Traders

There are numerous tax deductions that can be claimed when you’re a sole trader. The trick is be aware of all of them because there are a few little-known tax deductions that escape even the most savvy sole trader. It pays to learn what you can claim at tax time.

Car Expenses

As a sole trader your car can be your biggest work-tool and claimable expense that can lessen your tax burden.

You can claim your car expenses if you travel from job to job. If you use a car that is less than one tonne and designed to carry fewer than nine passengers, you can claim the cost of:

  • Fuel and oil
  • Repairs and servicing
  • Loan interest
  • Lease payments
  • Insurance cover premiums
  • Registration
  • Depreciation

You can’t claim car expenses if you drive from work from your home even if you work in an unusual location, if it’s not your normal work location or even if you have to work outside of normal business hours, however there are exceptions.

In limited circumstances, you can claim the cost of driving from home to work if you have shifting places of employment, that is if your workplaces regularly shift during the day before you return home.

Have you heard of the bulky tools rule? If you’re required to carry bulky tools and equipment, have no safe place to store your tools at your workplace, if the equipment is too awkward to transport by any other means and the tools are essential to earning your income, you can claim your car expenses whilst transporting those tools.

If you claim car expenses, you’ll need to claim using the cents per kilometre method or the log book method. You’ll need a log book to show your work-related percentage or show the Australian Taxation Office (ATO) the reasonable way you calculated using the cents per kilometre method. For detailed information on claiming your car expenses, click here.


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Tools and Equipment

As a sole trader, you’ll need tools of your trade to do your job. You can claim tax deductions for the equipment you use and need to do your job. You can only claim the work-related portion if your tool is used for both work and private use. If your tool or equipment is used for more than 50% of the time for private use, you can’t claim a tax deduction – for example if you’re a cleaner and you purchase a vacuum cleaner and use it mostly to clean your home.

If your tool or equipment costs more than $300, you can claim a deduction for the cost over a number of years (depreciation – link to depreciation blog). If you spent $300 or less, you can claim an immediate deduction for the whole expense. If you are an eligible business that chooses to use “Temporary full expensing”, then there is no $300 threshold and you may be able to immediately write off the value of any tools purchased up until 30 June 2022.

Travel

You can claim the cost of travel if you’re required to travel overnight and don’t attend your usual work location. For example if you’ve travelled to a remote location to do your job. These expenses include meals, accommodation, fares and incidental travel that you incurred while providing your duties.

If you received an allowance of any sort, you can’t claim these expenses as a tax deduction.

Clothing and Laundry

There are a few cases in which you can claim clothing and laundry expenses. You generally can’t claim clothes that are private in nature even if you do wear them for work. This type of clothing includes business / office attire, black pants, jeans sneakers and everyday shoes.

Protective clothing can be claimed if you need to wear it to avoid injury and guard against specific risks. The clothing must have protective features or functions, for example steel-capped boots, non-slip shoes and high-vis vests.

Compulsory uniforms can be claimed if they are distinctive to a workplace and easily identifies your job, for example an air hostess or beauty worker.

Home Office

Sole Traders generally have a home office. There are a range of tax deductions to be claimed for working from home. These can be running costs, such as electricity and gas, the decline of equipment and furniture, phone and internet expenses.

For an extensive list of home office expenses, click here.

Self Education

As a sole trader, you’ll want to keep on top of your industry. If you undertake any courses that maintains or improve your skills and knowledge or results in an increase of income from your current employment, keep those receipts; those expenses can be claimed.

You can’t claim if your education is general or is designed to get you another job. For example, you can’t claim a Bachelor of Nursing if you’re working as a personal care assistant.

Other Common Deductible Work-Related Expenses

There are other ordinary expenses that can be claimed and include:

  • advertising and marketing expenses
  • legal expenses
  • accounting and tax lodgement expenses
  • bank fees
  • insurance premiums
  • interest on bank loans
  • software subscriptions
  • union fees
  • journal and other subscriptions
  • journals and magazine subscriptions
  • repair and maintenance for your work equipment

To claim any deduction, proof is key. You’ll need to keep your receipts, bank statements, financial records, and / or contracts. Your expense must already be paid before you claim, and you can only claim work-related expenses that directly relate to earning your income. If your expense was a mix of private and work, you’ll need to work out the work-related portion and claim only that as your expense.

Working as a sole trader is varied. No two jobs are alike and no two tax returns will be alike either. What one sole trader might claim as a tax deduction, another might not be eligible for. It always pays to know exactly what you can claim and how you can make your claims. Claiming all of your tax deductions can make a huge difference off your profit line. ITP Tax Accountants have been around for 50 years. There’s not a lot they don’t know about tax. Trust the people who have made a living out of saving people time and tax money. Phone 1800 378 487 and chat with a friendly accountant today.