What the ATO Actually Wants Small Business Owners to Know at Tax Time
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Tax time doesn't have to be stressful. But it does require knowing what you can claim, how to claim it, and what records back it up.
The ATO's Small Business Tax Toolkit covers the deductions and obligations that come up most often for Australian small business owners. Here's what you need to know — in plain language.
This is a plain-language summary of ATO guidance current as of June 2026. Your individual circumstances will always affect what applies to you. When in doubt, talk to a registered tax agent.
Home-Based Business Expenses
If you run your business from home, you can likely claim some of those costs as a deduction. There are two types: running expenses and occupancy expenses.
Running expenses are the extra costs from operating at home i.e heating, cooling, lighting, cleaning, phone and internet, and depreciation on equipment like computers and desks. You can claim these even without a dedicated room.
There are three calculation methods. The fixed rate method is the simplest: claim 70 cents per hour worked from home, covering energy, phone, internet and consumables. You still need a full-year record of hours worked. The actual cost method lets you claim real expenses but requires more detailed records. The floor area method works if you have a dedicated workspace, apportioning costs by the percentage of floor space used.
Occupancy expenses i.e rent, mortgage interest, council rates, insurance, can only be claimed if your home workspace genuinely has the character of a "place of business." If you do claim them, be aware there may be CGT implications when you sell your home.
Keep all records for at least 5 years.
Motor Vehicle Expenses
If you use a vehicle for business, you can claim the business portion of running costs. The method available depends on your structure and vehicle type.
For sole traders and partnerships using a car, you have two options. The cents per kilometre method lets you claim up to 5,000 business kilometres at 88 cents per kilometre for 2024–25 (check the current rate each year). No logbook needed, but you must be able to show how you calculated the kilometres. The logbook method lets you claim actual expenses based on your business-use percentage, calculated from a logbook kept for at least 12 continuous weeks. A valid logbook lasts 5 years.
For other vehicles (motorcycles, heavy utes, large vans), you can only claim actual costs based on receipts.
Companies and trusts can only ever claim actual costs — the cents per kilometre and logbook methods aren't available.
Travel Expenses
Business travel is deductible, but only the genuinely business-related portion. Claimable costs include flights, accommodation, meals when away overnight, taxis, ride-shares, car hire, fuel, tolls and parking.
Private costs i.e leisure activities, a holiday bolted onto a business trip, or a family member's travel, are never deductible.
If you travel for 6 or more consecutive nights, sole traders and partners must keep a travel diary recording each business activity, when it occurred, how long it lasted and where. Companies and trusts are strongly advised to do the same.
Digital Product Expenses
Most digital costs are deductible. The key is whether something is an operating expense or a capital expense.
Operating expenses (claimed immediately) include software subscriptions i.e accounting, cybersecurity, point-of-sale, job management - plus cloud storage, internet fees, file-sharing services and website maintenance.
Capital expenses (claimed over time, or immediately if eligible) include laptops, computers, tablets, phones, cameras and website development costs. If your business has an aggregated annual turnover under $10 million, you may be able to write off the full cost in the year of purchase under the simplified depreciation rules.
Always apportion between business and private use. Only the business portion is claimable.
Using Business Money and Assets
This is where many small business owners, especially those who've moved into a company or trust structure, come unstuck.
Unlike sole trading, a company or trust is a separate legal entity. Taking money or using assets personally has tax consequences. Salary must be paid through formal payroll, with PAYG withholding, Single Touch Payroll reporting and super contributions all properly handled. Personal use of company assets (a car, holiday property, equipment) may trigger fringe benefits tax.
Division 7A is worth understanding: if a private company loans money to a shareholder or pays their personal expenses without a formal agreement, it can be treated as an unfranked taxable dividend, even if the transaction was unintentional.
Pausing or Closing Your Business
Pausing trading doesn't mean cancelling your ABN or GST registration, but you still need to lodge your BAS on time, even as a nil return.
Permanently closing requires more: lodge your final BAS and tax return, finalise all super and STP obligations, cancel your GST registration within 21 days of ceasing business, and cancel your ABN within 28 days. Selling business assets may trigger CGT, though small business concessions may apply.
Even after closing, keep your records for 5 years from your final lodgement.
The Golden Rules
Whatever your situation, three things apply across the board: keep records for 5 years, only claim the business portion of mixed-use expenses, and if your structure changes, your obligations change too.
The ATO app's myDeductions tool is genuinely useful for sole traders — it lets you log car trips, scan receipts and track deductions throughout the year rather than scrambling at the end.
