Tax deductions can reduce your taxable income, but knowing what you can legitimately claim is just as important as knowing what you cannot.

For employees, deductions may include certain work-related expenses, while business owners can generally claim eligible costs associated with earning business income. However, the rules vary depending on the expense, how it is used, your business structure and the records you keep.

As John Saade, CEO and Co-Founder of Latitude Accountants, regularly highlights through Latitude’s tax and accounting advice, good tax planning is about understanding the rules and making legitimate claims—not simply trying to reduce your tax bill at any cost.

The Australian Taxation Office (ATO) generally requires individual work-related expenses to be paid by you, directly related to earning your income and supported by appropriate records. Private expenses generally cannot be claimed.

Here’s what Australian individuals and business owners should know about tax deductions.

What Is a Tax Deduction?

A tax deduction is an eligible expense that can be subtracted from your assessable income when calculating your taxable income.

For example, if you earn $100,000 and have $5,000 in legitimate deductible expenses, your taxable income may be reduced to $95,000.

Importantly, a $5,000 deduction does not mean a $5,000 tax refund. The deduction reduces the income on which you are taxed.

Whether an expense is deductible depends on factors such as:

• Why you incurred the expense
• Whether it relates to earning income
• Whether it has a private component
• Whether you were reimbursed
• Whether you have sufficient records
• Whether specific tax rules apply

The Three Golden Rules for Work-Related Deductions

For individual work-related expenses, the ATO’s basic principles can be summarised into three important tests.

You paid for the expense yourself

You generally cannot claim an expense that your employer paid for or reimbursed.

The expense relates to earning your income

There needs to be a direct connection between the expense and your work or income-producing activities.

An expense that is primarily personal is generally not deductible simply because it may be useful for your job.

You have records to support your claim

You need evidence showing what you spent and, where relevant, how you calculated the work-related portion.

The ATO states that most records need to be kept for five years from the date you lodge your tax return.

Common Tax Deductions for Employees

Employees may be able to claim a range of work-related expenses where the relevant requirements are satisfied.

Common examples include:

• Work-related travel
• Certain vehicle expenses
• Work-related phone and internet costs
• Tools and equipment
• Professional memberships
• Certain work-related education expenses
• Working-from-home expenses
• Eligible protective clothing
• Certain union and professional association fees
• Eligible expenses associated with earning employment income

However, not every expense connected to your job is automatically deductible.

For example, ordinary clothing that could be worn outside work is generally not transformed into deductible workwear simply because you wear it to work.

Can You Claim Working From Home Expenses?

If you work from home to perform your employment duties and meet the relevant requirements, you may be able to claim eligible additional running expenses.

For the 2025–26 income year, the ATO’s fixed-rate method is 70 cents per hour worked from home, subject to the eligibility and record-keeping requirements.

You may also be able to use the actual-cost method, depending on your circumstances.

Working from home does not mean you can automatically claim:

• Your entire rent
• Your entire mortgage
• All household bills
• Personal expenses

The deduction generally relates to eligible additional costs associated with working from home.

Can You Claim Phone and Internet Expenses?

You may be able to claim the work-related portion of your phone and internet expenses where you meet the relevant requirements.

If your phone is used for both work and personal purposes, you generally need to determine the work-related percentage rather than automatically claiming the entire bill.

For example, if appropriate records establish that 30% of your usage is work-related, you would generally claim only the eligible work-related portion.

Keep evidence of how you calculated the percentage. An estimate without a reasonable basis can create problems if the claim is reviewed.

Can You Claim Travel and Car Expenses?

Some work-related travel and motor vehicle expenses may be deductible, but the rules depend on the circumstances and method used.

For the 2026–27 income year, the ATO’s cents-per-kilometre rate is 91 cents per kilometre, subject to the applicable rules and limits.

Not every trip between home and work is automatically deductible.

The key question is whether the travel satisfies the relevant tax rules and is sufficiently connected to earning your income.

Tax Deductions for Business Owners

Business owners have a broader range of potential deductions because businesses incur expenses in operating and generating income.

Common business expenses may include:

• Employee wages and eligible employment costs
• Advertising and marketing
• Accounting and professional fees
• Business insurance
• Rent and premises expenses
• Utilities
• Software and subscriptions
• Office expenses
• Repairs and maintenance
• Business travel
• Interest on eligible business borrowing
• Certain business vehicle expenses
• Equipment and other depreciating assets

The ATO notes that operating expenses for the everyday running of a business are generally deductible in the year they are paid, subject to the applicable tax rules. Capital expenses may instead be subject to depreciation or other specific deduction provisions.

Business Expenses vs Capital Expenses

One important distinction business owners need to understand is the difference between an ordinary operating expense and a capital expense.

Operating expenses

These are generally costs associated with the day-to-day operation of the business.

Examples may include:

• Rent
• Advertising
• Office supplies
• Professional services
• Software
• Utilities

Capital expenses

Capital expenditure generally relates to acquiring or improving assets or establishing certain long-term business structures.

Examples can include:

• Major equipment
• Certain business assets
• Property improvements
• Some business establishment costs

The tax treatment can differ significantly.

Some capital expenses may be claimed through depreciation or specific provisions rather than deducted immediately. The ATO also provides rules allowing certain eligible business-related start-up expenditure to be deducted immediately or over five years, depending on the nature of the expenditure.

What Expenses Can’t You Claim?

Understanding what isn’t deductible is just as important as knowing what you can claim.

Common examples of problematic claims include:

• Private household expenses
• Personal clothing that is not eligible protective or occupation-specific clothing
• Private portions of mixed expenses
• Expenses reimbursed by an employer
• Expenses with no connection to earning income
• Unsupported or fabricated expenses
• Personal holidays disguised as business travel
• Private purchases incorrectly treated as business expenses

The ATO’s general deduction rules require a sufficient connection between the expense and assessable income, while capital and private expenses may be excluded or subject to different rules.

What If an Expense Is Both Business and Personal?

Many expenses are mixed.

A phone, vehicle, internet connection or home office might be used for both business and personal purposes.

In these situations, you generally need to apportion the expense.

For example:

Total expense × business-use percentage = potential business deduction

The important point is that the percentage should be based on a reasonable method and supported by appropriate records.

You should not automatically claim 100% simply because an expense is useful to your business.

What Records Should You Keep?

Good record-keeping is one of the easiest ways to strengthen your deduction claims.

Depending on the expense, records may include:

• Receipts
• Tax invoices
• Bank statements
• Expense reports
• Travel records
• Logbooks
• Work-from-home records
• Usage calculations
• Contracts
• Asset purchase documents

The ATO states that written evidence is generally required for work-related expenses above the relevant $300 threshold, although specific categories have different evidence requirements.

Keeping records throughout the year is usually much easier than trying to reconstruct everything before tax time.

What About Tax Deductions for Business Start-Up Costs?

Starting a business can involve significant expenses before the business generates substantial income.

Certain eligible start-up costs may receive specific tax treatment.

For example, the ATO identifies certain costs associated with obtaining professional advice on establishing or operating a proposed business, as well as certain government fees, as potentially immediately deductible for eligible small businesses. Other qualifying capital expenditure may be deductible over five years.

Because start-up expenses may be subject to specific rules, business owners should avoid assuming that every expense incurred before opening is immediately deductible.

Tax Deductions Are Not a Reason to Spend More

One common misconception is that spending money to obtain a tax deduction automatically saves money.

It doesn’t.

If you spend $1,000 on an expense purely because it is deductible, you are still spending $1,000.

A deduction simply reduces the amount of income subject to tax, assuming the expense qualifies.

The better approach is to:

• Spend money where it benefits your business or income
• Claim legitimate deductions you are entitled to
• Keep appropriate records
• Understand the tax treatment before making significant purchases
• Avoid spending simply to reduce taxable income

Good tax planning should support a strong financial position—not encourage unnecessary spending.

How Can an Accountant Help With Tax Deductions?

Tax deductions can become complicated when you have multiple income sources, a business, investments, property, or expenses that have both business and personal components.

An accountant can help you:

• Identify potentially deductible expenses
• Determine the correct tax treatment
• Apportion mixed-use expenses
• Understand depreciation
• Review business expenses
• Maintain appropriate records
• Identify potential compliance risks
• Plan legitimate tax strategies
• Prepare and review tax returns

For business owners, this can be particularly valuable because an incorrectly classified expense can affect more than just your tax return.

Frequently Asked Questions About Tax Deductions in Australia

What is the most common tax deduction in Australia?

Work-related expenses are among the most common deductions claimed by Australian taxpayers, but what you can claim depends on your occupation, circumstances and whether the expense satisfies the relevant requirements.

Can I claim an expense without a receipt?

It depends on the expense and the applicable evidence rules. You should keep appropriate records wherever possible rather than assuming an expense is deductible without evidence.

Can I claim 100% of a business expense?

Only if the expense is genuinely business-related and the relevant tax rules allow the full amount to be deducted. If an expense has a private component, you generally need to apportion it.

Can I claim my home office expenses?

You may be able to claim eligible working-from-home expenses if you meet the relevant requirements. The method and amount depend on your circumstances and the records you maintain.

Are business start-up costs tax deductible?

Some eligible start-up costs can be deductible, while others may need to be deducted over time or treated under specific tax provisions.

Can I claim personal expenses through my business?

Generally, personal expenses are not business deductions simply because the business paid for them. The correct tax treatment depends on the circumstances and may involve issues such as director loans or fringe benefits for companies.

Get Professional Help With Your Tax Deductions

Knowing what you can claim is only half the equation. Knowing what you should claim, how much you can claim, and what records you need is equally important.

Latitude Accountants helps Australian individuals and business owners navigate taxation, accounting and business advisory matters with practical, numbers-focused advice.

If you’re unsure whether an expense is deductible or want to review your tax position before lodging your return, speak with the Latitude Accountants team.

Latitude Accountants

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Disclaimer

This article provides general information only and does not constitute personal tax, accounting, financial or legal advice. Tax rules and deduction eligibility can change, and individual circumstances vary. Before making a tax claim or financial decision, speak with a registered tax agent or appropriately qualified professional about your specific circumstances.