Tax deductions for contractors

If claiming tax deductions was more intuitive, we probably wouldn’t need articles like this one.

The reality is that Australia’s tax system has layers of complexity, designed to keep things fair for everyone. This means some of your business expenses are deductible, while other expenses that you think might be deductible actually aren’t, and there’s probably money you’re leaving on the table without realising it!

Here’s the good news: the ATO has three golden rules to help contractors like you determine what’s claimable. If your expense meets all three criteria, it’s probably tax deductible:

1. You must have spent the money yourself, and weren’t reimbursed.
2. The expenses must directly relate to earning your income.
3. You must have a record to prove it (usually a receipt).

There are also a couple of extra points worth remembering:

• If you have a client who reimburses you for an expense, it’s no longer claimable.
• The exception is allowances. If you receive a taxable allowance for an expense (eg. travel), and you spend money on travel, you can claim what you spend as an expense.
• If an expense is for business and personal use, you can only claim the business usage of it.

To help you get to grips with it all, we’ve created this comprehensive guide for contractors across every industry – from engineers, to analysts, to IT experts – unlock all the deductions you’re entitled to. Let’s get you up and claiming with confidence!

Key:

• ✅ - straightforward and claimable
• ⚠️ - claimable if certain conditions are met
• ❌ - not claimable at all. Sorry folks.

Can claim:

1. Licenses, certifications, and professional development ✅
2. Working from home costs ✅
3. Office setup costs ✅
4. Equipment ✅
5. Phone and internet expenses ✅
6. Travel expenses ✅
7. Professional indemnity insurance ✅
8. Protective items ✅
9. Seminars, conferences, and training courses ✅

Might be able to claim

1. Self-education, and study ⚠️
2. Clothing and laundry ⚠️
3. Meals ⚠️
4. Car expenses ⚠️

Can’t claim

1. Child care ❌
2. Entertainment and social functions ❌
3. Glasses ❌
4. Grooming ❌
   
   

1. Licences, certifications, and professional development ✅

All licensing fees, certifications, and professional development costs that keep you qualified and competitive are tax deductible.

This includes things like:

• Trade licences and renewals
• Industry certification fees
• Professional association memberships
• Skills training and upskilling courses

Don’t let any of these slip through the cracks!

2. Working from home costs ✅

If you run your contracting business from a home office, you might be able to claim some of your household running costs – but only the extra expenses directly related to your work.

Under the ATO’s home-based business rules, contractors with a dedicated workspace that functions as a genuine ‘place of business’ can work out what portion of occupancy costs are deductible. Calculate the percentage of your home used exclusively for business, and that’s potentially the percentage of your rent or mortgage interest you can claim.

Keep in mind: if your home office pulls double duty for work and personal activities, you can’t claim occupancy expenses anymore.

The rules can get pretty detailed, so it’s worth diving into the ATO guidelines for the full picture.

3. Office setup costs ✅

Whether you’re converting a spare room into a professional workspace or building your setup from the ground up, equipment purchased specifically for your business is typically tax deductible.

This includes essentials like:

• a solid work desk
• a quality ergonomic chair
• laptop stands and monitor setups
• keyboard trays, monitor arms, or desk organizers
• filing systems and storage solutions
• proper lighting for detailed work or evening hours

The key requirement is that equipment must be used solely for business purposes, in order to claim the full cost. If that new office chair will also be your weekend gaming throne, you can only claim the business portion of the expense.

💡 For expensive items, you might need to claim the depreciation over multiple years instead of the entire cost immediately.

The bottom line: creating a professional workspace isn’t just an investment in your productivity and comfort – it’s also a legitimate business expense that can help reduce your tax bill!

4. Equipment ✅

Any tools, equipment, or gear essential for your work are fully deductible expenses.

Think computer equipment, software subscriptions, power tools, or even a high-vis vest.

Just remember: when equipment serves both business and personal purposes, you can only claim the work-related portion of the cost.

5. Phone and internet expenses ✅

You can claim the work-related slice of your phone and internet bill, including:

• the actual phone
• monthly phone plans and data
• home internet connection
  
  

6. Work-related travel expenses ✅

Expenses from overnight work trips can be claimable.

Even if you receive a travel allowance that counts as taxable income, you can still claim travel-related expenses if you can show that:

• the trip required an overnight stay,
• you incurred genuine expenses,
• the travel directly related to earning your income,
• how you calculated your claim.
  
  

7. Insurance premiums ✅

Many contractors need professional indemnity or public liability insurance to protect against potential claims from clients or third parties.

These insurance premiums are completely tax deductible – and sometimes essential, depending on your contract.

8. Safety equipment ✅

Safety gear and personal protective equipment like:

• hard hats
• safety boots
• gloves
• high-vis clothing

are all deductible, provided you’re purchasing them yourself rather than being reimbursed by clients.

9. Seminars, conferences, and training courses ✅

Expenses for attending industry conferences, trade shows, or professional development courses are tax deductible – as long as they’re genuinely relevant to advancing your contracting career.

You can also claim travel costs, accommodation, and meals when you’re away from home overnight for these events. Bonus!

Just remember: the entire trip must be work-focused. You can’t book a Gold Coast getaway, attend one industry breakfast, and claim the whole holiday (nice try though!). In mixed-purpose trips, only the direct work-related costs (like conference registration) will be deductible.

10. Self-education and study ⚠️

You can claim education and training expenses when they directly relate to your current contracting work. To qualify, these expenses must:

• maintain or enhance the specific skills and knowledge required for your current projects, or
• be likely to increase your earning potential in your existing field.

You can’t claim deductions for courses that would help you break into a completely different industry, or training that’s only loosely connected to your work. Personal development seminars also don’t meet the ATO’s criteria for business expenses.

11. Clothes and laundry ⚠️

This one has some strict criteria. The ATO only allows deductions for:

• uniforms featuring company logos,
• occupation-specific clothing (like hi-vis gear or safety boots), and
• specialized costumes required for specific roles.

Regular business attire that could reasonably be worn outside work doesn’t qualify, even if you only wear it on job sites.

When your work clothes are deductible, you can also claim related laundry costs, like:

• Dry cleaning and repairs
• $1 for each load containing only work clothes
• $0.50 for mixed loads with work and personal items

If your annual laundry expenses (excluding dry cleaning) are under $150, you don’t need detailed records, but you must be able to show how you worked out your claim.

12. Meals ⚠️

We all need to eat, especially while we work. But the ATO rules are pretty specific about when you can claim costs.

• ❌ You can’t claim your regular lunch, coffee, or snacks during normal work hours. The ATO considers these personal expenses.
• ✅ You can claim meals if you’re working late and receive an overtime meal allowance from a client that’s included in your taxable income.
• ✅ You can also claim meals when you’re travelling overnight for work.

Basically, if it’s just your regular fuel to get through the day, it’s on you. But if it’s genuinely an extra cost because of specific work circumstances, it might be claimable.

13. Motor vehicle expenses ⚠️

Car expenses can be tax deductible for contractors, but the rules are quite specific:

• ❌ Regular commuting between home and your primary workplace isn’t claimable, even if you work unusual hours. This includes taxi fares and public transport costs – the ATO views your standard commute as a personal expense.
  • Limited exceptions exist, such as when you have no fixed workplace and constantly move between different job sites.
• ❌ Tolls for your regular commute to your main work location aren’t deductible.
• ❌ Parking at or near your regular workplace doesn’t qualify for deductions.
• ✅ Travel between different job sites during your working day is fully claimable.
• ✅ Moving between multiple work locations for the same client or project qualifies for deductions.
• ✅ Tolls and parking for work-related trips (excluding regular commuting) are deductible.

📖 For more on vehicle expense claims, check out our detailed guide to motor vehicle deductions.

14. Child care ❌

We’re so sorry, but childcare is always considered a personal expense. Even if you can’t work without it. Even if it’s essential for you to run your business. Unfortunately, the ATO is crystal clear about this one.

15. Entertainment and social functions ❌

This one stings a bit, but entertainment and social expenses are classified as personal costs, even when they’re work-related or necessary for your business. You can’t claim deductions for:

• client entertainment like dinners or recreational activities,
• networking events and industry social functions (even when clients expect you to be there – we know, ouch!).
  
  

16. Prescription glasses and eyewear ❌

Can’t work without your specs? The ATO still won’t help with the cost.

Glasses and contact lenses are personal expenses, even if you’re practically blind without them and can’t do your job. It doesn’t matter how essential they are for your work – they’re not claimable.

17. Personal grooming and appearance ❌

Even if your clients expect you to maintain a professional appearance, grooming expenses are classified as personal costs. Basically, the ATO doesn’t think looking good is tax deductible.

Claim tax deductions with Hnry

We may be biased, but we reckon the best way for contractors to maximise tax deductions (cost-effectively and legally!) is to use Hnry.

Hnry is an award-winning app that’s helping contractors spend less time on financial admin, and more time doing what they love (unless what they love is financial admin).

For just 1% +GST of your self-employed income, capped at $1,500 +GST a year, Hnry will calculate and pay all your taxes, levies and whatnot for you, including:

• Income tax
• GST
• Medicare Levy
• Student loan repayments
• Superannuation contributions (optional)

We also complete and lodge your tax return for you, including claiming any tax relief you might be entitled to. It’s all part of the service!

More importantly, we free up thousands of hours for contractors to focus more on what they do best – their jobs. Hnry is on a mission to make being a sole trader simple, affordable, and accessible for anyone.

Get your tax ducks (and deductions) in a row by joining Hnry today!

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