Most small businesses do not miss deductions because the rules are hard. They miss them because the paperwork is scattered, the private portion is unclear, or the rule changed and nobody noticed. The instant asset write-off is the latest example.
This guide covers the main deductions for the 2025-26 returns now being prepared and the 2026-27 year already under way: the $20,000 instant asset write-off and its status from 1 July 2026, home-based business costs, vehicles, super, prepayments, bad debts and software. Each rule was checked against ATO legislation updates and ATO business deduction pages in October 2026.
It is written for sole traders, partnerships, companies and trusts with turnover under $10 million. For a detailed walk-through of asset purchases, read our instant asset write-off guide.
Key takeaways
- Every deduction must be for business use, only the business portion of mixed-use costs counts, and you need records.
- Small businesses with aggregated turnover under $10 million can write off assets costing less than $20,000 each; the ATO says this is permanent from 1 July 2026.
- Cents per km is 88c for 2025-26 and 91c for 2026-27, up to 5,000 km, for sole traders and partnerships only.
- Home business running costs can use the 70c per hour fixed rate.
- Prepaid expenses covering 12 months or less can be deducted upfront by small businesses.
- From 1 July 2026, the super guarantee charge is tax deductible under Payday Super.
Small business deductions at a glance
| Deduction | Key rule | 2025-26 | 2026-27 |
|---|---|---|---|
| Instant asset write-off | Assets under the limit, turnover under $10 million, first used or installed ready for use in the year | $20,000 per asset | $20,000 per asset (made permanent) |
| Small business pool | Assets of $20,000 or more | 15% first year, 30% after | 15% first year, 30% after |
| Car: cents per km | Sole traders and partnerships, max 5,000 km | 88c per km | 91c per km |
| Home business running costs | Fixed rate per hour worked at home | 70c per hour | 70c per hour |
| Prepaid expenses | Service period 12 months or less | Deduct upfront | Deduct upfront |
| Super guarantee charge | Late super penalty charge | Not deductible | Deductible from 1 July 2026 |
Source: ATO $20,000 instant asset write-off, ATO car expenses 2026, ATO home-based business expenses, ATO Payday Super, checked 7 October 2026.
What makes a business expense deductible?
The ATO sets out three golden rules: the expense must be for business use, not private use; if it is for both, you can only claim the business portion; and you must have records to prove the claim.
You cannot claim entertainment, private expenses, traffic fines, or expenses that relate to earning non-assessable income. A sole trader who uses a phone 60% for work claims 60% of the bill, and needs a reasonable way to show how that split was worked out.
Records are your defence. The ATO record keeping guidance for business explains what to keep, and our article on claiming deductions without receipts covers the narrow exceptions.
How does the instant asset write-off work for 2025-26 and 2026-27?
For 2025-26, the $20,000 threshold was extended to 30 June 2026 by the Treasury Laws Amendment (Strengthening Financial Systems and Other Measures) Act 2025. Following the 2026-27 Budget on 12 May 2026, the ATO new legislation page says the $20,000 write-off has been made permanent for small businesses from 1 July 2026.
- Your aggregated turnover must be under $10 million and you must use the simplified depreciation rules.
- The limit applies per asset, so you can write off several assets that each cost less than $20,000.
- The asset must be first used or installed ready for use in the income year you claim it.
- Assets costing $20,000 or more go into the small business pool, deducted at 15% in the first year and 30% each year after.
- If the pool balance is under $20,000 at the end of the income year, you can write off the balance.
- The five-year lock-out for businesses that left simplified depreciation remains suspended until 30 June 2027.
Some assets are excluded, including capital works such as buildings, assets leased out more than 50% of the time, and software allocated to a software development pool, according to the ATO exclusions list. Historic thresholds are on the ATO instant asset write-off page, and the wider depreciation and capital allowances section covers everything else. Our assets and depreciation guide has more examples.
What can you claim for a home-based business?
The ATO splits home-based business expenses into two groups:
- Running expenses: electricity, gas, phone, internet, stationery, cleaning and depreciation of equipment. You can use the fixed rate of 70 cents per hour worked from home, actual costs, or floor area for some costs.
- Occupancy expenses: rent, mortgage interest, council rates, land tax and house insurance. These are only claimable if part of your home has the character of a place of business, such as signage, an area not suited to domestic use, near-exclusive business use and regular client visits.
Claiming occupancy expenses can mean capital gains tax applies to part of your home when you sell. Get advice before you start. Our home office deductions guide covers the employee side.
How do you claim vehicle expenses?
Under the ATO motor vehicle methods, sole traders and partnerships can use cents per kilometre or the logbook method for cars. Companies and trusts must use actual costs.
- Cents per km: 88c for 2025-26 and 91c for 2026-27, for up to 5,000 business kilometres per car.
- Logbook: keep a logbook for a representative period to set the business-use percentage, then claim that share of fuel, insurance, registration, servicing and decline in value.
Can you deduct super contributions?
Employers can claim super contributions made on time to a complying fund. From 1 July 2026, Payday Super requires contributions to reach the employee’s fund within 7 business days after payday, and the super guarantee charge for late payments becomes tax deductible. Before 1 July 2026 it was not. See our Payday Super guide.
Sole traders can usually claim their own personal contributions, but only after giving their fund a valid notice of intent and receiving its acknowledgement before lodging. These contributions count towards your concessional cap.
What about prepayments, bad debts and software?
Prepaid expenses
Small business entities can deduct prepaid expenses immediately if the service period is 12 months or less and it ends no later than the last day of the following income year, under the ATO 12-month rule. Annual insurance or a 12-month subscription paid in June can be deducted in full that year.
Bad debts
You can claim a bad debt only if the amount was previously included in your assessable income, you have decided it is unlikely to be recovered, and you recorded the decision in writing before the end of the income year. Cash-basis businesses cannot claim bad debts.
Software and subscriptions
Monthly subscriptions for accounting, design or industry software are operating expenses. Purchased software can generally be written off or pooled under simplified depreciation, except software allocated to a software development pool. Our accounting software comparison can help you choose.
| Expense | Deductible? | Note |
|---|---|---|
| Business share of phone and internet | Yes | Apportion private use |
| Client entertainment | Generally no | Entertainment is not deductible unless FBT applies |
| Traffic fines | No | Fines are excluded |
| Private expenses | No | Only the business portion counts |
| GST paid on purchases | Not as income tax | Claim it as a GST credit on your BAS |
| Late super (SG charge) | From 1 July 2026 | Not deductible before that date |
Worked example: an electrician’s 2025-26 deductions
Sam is a sole trader electrician with turnover well under $10 million. In 2025-26 Sam has:
- Car costs of $10,000 with a 70% logbook percentage: $10,000 x 70% = $7,000
- A laptop costing $2,400 (excluding GST), first used in February 2026: instant asset write-off $2,400
- A van costing $45,000 (excluding GST), used only for business, added to the pool: $45,000 x 15% = $6,750
- Office work at home, 276 hours at 70c: 276 x $0.70 = $193.20
- 12 months of business insurance prepaid on 1 May 2026: $1,800
Total: $7,000 + $2,400 + $6,750 + $193.20 + $1,800 = $18,143.20. Without the 12-month rule, only two months of the insurance would fall in 2025-26.
Rule of thumb: before 30 June, list the assets you plan to buy and the bills you can prepay. A deduction only counts in the year the asset is first used or installed, or the expense is incurred.
Common mistakes with small business deductions
- Claiming the write-off on an asset not yet installed: paying for it on 29 June is not enough.
- Using cents per km in a company: companies and trusts must use actual costs.
- Claiming occupancy costs without a place of business: a spare-room desk usually only supports running costs.
- Writing off debts after 30 June: the decision must be recorded before year end.
- Claiming entertainment: client dinners and staff parties that are not subject to FBT are not deductible. See our FBT and Christmas guide.
FAQ about small business tax deductions
Is the $20,000 instant asset write-off still available after 30 June 2026?
Yes. The ATO new legislation page, updated August 2026, says the $20,000 instant asset write-off has been made permanent for small businesses with aggregated turnover under $10 million from 1 July 2026. The limit applies per asset, and the asset must be first used or installed ready for use in the income year you claim it.
Can a company use the cents per kilometre method for its cars?
No. The ATO says sole traders and partnerships can choose between the cents per kilometre and logbook methods for cars, but companies and trusts must use the actual costs method. The cents per kilometre rate is 88 cents for 2025-26 and 91 cents for 2026-27, capped at 5,000 business kilometres per car.
Can I claim my home office as a sole trader?
You can claim running expenses such as electricity, internet and phone using the fixed rate of 70 cents per hour or actual costs. Occupancy expenses such as rent, rates and mortgage interest are only claimable if part of your home has the character of a place of business, which can also have capital gains tax consequences when you sell.
Can I deduct a debt a customer never paid?
Only if you have already included the amount in your assessable income, you have decided it is unlikely to be recovered, and you recorded the write-off in writing before the end of the income year. Businesses that report income on a cash basis cannot claim bad debts because the unpaid amount was never counted as income.
Are Christmas parties and client gifts deductible?
Entertainment is generally not deductible. The ATO says that if a Christmas party is not subject to fringe benefits tax, for example because it is an exempt minor benefit, you cannot claim an income tax deduction for its cost. Gifts and parties have their own rules, covered in our FBT and Christmas guide.
Talk to specialist before it costs you
15-minute discovery call. No obligation, no jargon.
Talk to a registered tax agent
Nanak Accountants can review your 2025-26 claims, plan asset purchases for 2026-27 and lodge your return. Call 1300 626 258 or book a free 15-minute discovery call. Sole traders may also find our sole trader deductions guide useful.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO instant asset write-off, simplified depreciation, home-based business, motor vehicle, super, Payday Super, prepaid expense, bad debt and entertainment pages on 7 October 2026. Rates and thresholds change, so confirm the current position before acting.
