Deductions can only be claimed if an expense is paid or incurred in gaining or producing assessable income. The expense cannot be a capital, domestic or private expense.

As a sole trader, you claim deductions directly against your PSI in your individual tax return.

Where the PSI is earned through a company, partnership or trust, the business reduces the amount of PSI that it attributes to an individual by the amount of the deductions. The deductions are for expenses that are incurred in gaining that individual’s PSI.

There are additional rules for entity maintenance deductions and car expenses.

Examples of allowable deductions include:

• gaining work – for example, advertising, tendering and quoting for work
• registration and licensing fees
• insuring against loss of income, earning capacity or liability for acts or omissions in the course of earning income
• public liability and professional indemnity insurance
• salary or wages and other expenses in engaging an arm's length employee or contractor (not an associate)
• reasonable amounts paid to an associate for principal work
• complying with workers compensation law
• super contributions for the benefit of the individual or an arm's length employee (not an associate)
• running expenses for a home office – for example, heating and lighting (but not rent, mortgage interest, rates or land taxes)
• depreciation of income-producing assets
• bank and other account keeping fees and charges
• tax-related expenses, such as the cost of preparing and lodging tax returns or activity statements.
• meeting obligations under GST.

Additionally, if the PSI is earned through a company, partnership or trust, the business is entitled to claim entity maintenance deductions. These are:

• fees or charges associated with a bank, credit union or other financial institution account (but not including interest or interest-like amounts)
• tax-related expenses (for example, preparing and lodging tax returns and activity statements)
• any expense incurred for preparing or lodging a document under Corporations Law, except where the payment is made to an associate
• statutory fees.

This is not a complete list, as what can be claimed depends on how the income is earned.