Business Tax & Superannuation Updates for 2025–26: What Sole Traders and Small Businesses Need to Know

Income tax thresholds/amounts

Some income tax thresholds and amounts changed on 1 July 2025, while others did not. Some of the more common threshold’s amounts are listed below.

ATI = adjustable taxable income

GDP adjustment for 2025–26

The GST and PAYG instalment amounts are usually adjusted every year by the ‘GDP adjustment factor’.

For the 2025–26 income year, the GDP adjustment factor is 4%. It was 6% for 2024–25.

Instant asset write-off

Are you a sole trader? The instant asset write-off (IAWO) allows a small business (aggregated annual turnover of less than $10 million) to claim an immediate deduction for the cost of eligible depreciating assets that cost less than the applicable threshold. The IAWO threshold was $20,000 for 2023-24 and 2024-25, and has reverted to $1,000 from 1 July 2025. The Government has proposed to temporarily increase the threshold to $20,000 for 2025–26 but this measure is not yet law.

The $1,000 threshold applies where a depreciating asset is first used, or first installed ready for use, on or after 1 July 2025 (even if acquired before that date).

The $1,000 threshold also applies to the ‘second element’ costs incurred on or after 1 July 2025 (including in respect of an asset that was first used, or installed ready for use, before 1 July 2025). ‘Second element’ costs are essentially costs incurred after the asset is acquired that bring the asset to its present condition (e.g. the cost of post-acquisition modifications) and location (e.g. transport costs).

Medicare levy surcharge and private health insurance

The income thresholds for Medicare levy surcharge and private health insurance tax offset purposes are set out in the table below.

• The family income threshold is increased by $1,500 for each dependent child after the first child.

The Medicare levy surcharge is 1% for Tier 1 taxpayers, 1.25% for Tier 2 taxpayers and 1.5% for Tier 3 taxpayers.

The private health insurance tax offset percentage is highest for Tier 1 taxpayers and lowest for Tier 3 taxpayers. The percentage also varies depending on the ages of the persons covered by the relevant health insurance policy. There are 3 age brackets:

• under age 65

• age 65 to 69

• age 70 and above

HELP and other student debts

Do you have a study or training debt, such as a Higher Education Loan Program (HELP) debt (this used to be called a HECS debt)? The good news is that your debt has been reduced by 20% and the minimum compulsory repayment threshold has increased to $67,000 for the 2025–26 income year. In addition, the repayment rates have been simplified.

The 20% debt reduction applies to all study and training loans that existed on 1 June 2025. The ATO will apply this reduction to your loan debt on 1 June 2025; the 2025 indexation is then adjusted to the lower loan amount.

The ATO will notify you when it has applied the reduction to your study loan account.

Because of the gap from 1 June 2025 to when the reduction is applied, some of you may have paid off some, or all, of your loans. If you have a credit after the 20% reduction, you may get a refund if you don’t have outstanding tax or other government debts.

Refunds will be sent to the bank account details the ATO has for you (this could be your tax adviser’s trust account). Check to see if your financial institution account details the ATO has for you need to be updated.

The repayment thresholds and rates for the 2025–26 income year are set out in the table below.

Note that the repayment thresholds and rates also apply to:

• VET Student Loan (VSL)

• Student Financial Supplement Scheme (SFSS)

• Student Start-up Loan (SSL)

• ABSTUDY Student Start-up Loan (ABSTUDY SSL)

• Trade Support Loan (TSL) debts

The repayment rate is based on what is called ‘HELP repayment income’. This is effectively the sum of your taxable income, exempt foreign employment income, total reportable fringe benefit amounts, reportable super contributions and total net investment losses.

Superannuation and ETP thresholds

Relevant superannuation and ETP (employment termination payment) thresholds for the 2025–26 income year are listed below.

Note:

• To deduct a personal superannuation contribution, an individual aged 67–75 must be ‘gainfully employed’ for at least 40 hours in any 30-day period in the income year.

• If you accessed your superannuation early in response to the COVID-19 pandemic, you can choose to re-contribute those amounts by 30 June 2030 without them being counted towards your non-concessional contributions cap. The choice must be made in the approved form and given to your superannuation fund before you make the re-contribution.

Pensions and annuities – minimum drawdown amounts

The minimum drawdown amounts for 2025–26 are set out in the table below.

If you receive more than the minimum drawdown amount, you can recontribute these amounts if you are eligible to make superannuation contributions (subject to other rules or limits such as contributions caps).

The due date for lodging your income tax return for the 2024–25 income year is 31 October 2025. However, if you use a registered tax agent to lodge your return, the due date for lodgment is likely to be later than 31 October, possibly even as late as May next year.

Lodging a tax return

Are you a sole trader?

• Even if your income is below the tax-free threshold of $18,200, you still need to lodge a tax return.

• Do you pay PAYG instalments? Lodge your activity statements and pay all your PAYG instalments before you lodge your tax return so your income tax assessment takes into account the instalments you have paid throughout the year.

Are you a partnership?

If you operate your business in a partnership, the partnership lodges the partnership tax return, reporting the partnership’s net income or loss (assessable income less allowable deductions).

As an individual partner, you include in your individual tax return:

• your share of any partnership net income or loss

• any other assessable income, such as salary and wages, dividends and rental income

The partnership does not pay income tax on the income it earns. Instead, you and each of the partners pay tax on the share of net partnership income you receive.

Are you a trust?

If you operate your business through a trust, the trust reports its net income or loss (this is the trust’s assessable income less allowable deductions).

The trustee is required to lodge a trust tax return.

If you are a beneficiary of the trust, you report on your individual tax return any income you receive from the trust.

Tax losses

A tax loss arises when the total deductions you can claim, excluding gifts, donations and personal superannuation contributions, are greater than your total income for an income year.

If you make a tax loss, you may be able to:

• offset the loss in the same income year against other assessable income; or

• carry forward the loss and claim it as a business deduction in a later income year.

Make sure you keep the correct records.

Non-commercial loss rules

If you are a sole trader or in a partnership and want to utilise a tax loss, first check if the business activity meets at least one of the commerciality tests under the non-commercial loss rules. (Those rules do not apply to losses made by primary producers and professional artists whose income from other sources is less than $40,000.)

If you meet at least one of the commerciality tests, then you can offset the loss against other assessable income (such as salary or investment income) in the same income year.

If you do not meet the commerciality tests, you can carry the loss forward to future income years. For example, you may be able to offset it when you next make a profit.

Non-commercial losses made by an individual with adjusted taxable income exceeding $250,000 are quarantined.

Personal services income

If you operate your business through a company or a trust, income earned by the company or trust from the provision of your personal services (personal services income (PSI)) will be attributed to you unless:

• the company or trust is carrying on a personal services business (PSB); or

• the PSI was promptly paid to you as salary or wages.

The company or trust will be conducting a PSB if at least one of a number of tests are satisfied. These are:

• the results test (the most important test)

• the unrelated clients test

• the employment test

• the business premises test

If 80% or more of your PSI (with certain exceptions) is income from one client (or the client and their associate(s)) and the results test is not met, the company or trust will need to obtain a PSB determination from the ATO.

The company or trust cannot deduct amounts that relate to gaining or producing your PSI, unless you could have deducted the amount as an individual or the company or trust received the PSI in the course of conducting a PSB.

Even if you do not use a company or trust to derive your PSI, there are limitations on the deductions that you may claim against your PSI. For example, you may not be able to deduct certain home office expenses or occupancy expenses such as mortgage interest or rent.

Car expenses

In order to claim a deduction for car expenses:

• you must own or lease the car

• the expenses must be for work-related trips

• you must have spent the money yourself and were not reimbursed

• you must have the required records

Vehicles with a carrying capacity of one tonne or more, or 9 or more passengers (such as utes and panel vans) are not included in the definition of a car so these must be claimed separately as travel expenses.

You can claim trips directly between multiple workplaces or to perform your work duties, but you cannot claim trips between your home and place of work, except in limited circumstances.

Home office

If you operate your business from a home office, you can deduct the expenses of running that office. A home office is a room in your home that is used exclusively (or almost exclusively) for business activities.

Expenses you can claim a deduction for include:

• occupancy expenses — such as rent, mortgage interest, water rates, land taxes and house insurance premiums. Occupancy expenses are usually calculated by apportioning the expenses between the home office and the rest of the property on a floor area basis

• running expenses — these are the increased costs from using your home for your business, including electricity or gas charges for heating, cooling and lighting, cleaning costs and the decline in value and the cost of repairs of deprecating assets such as furniture, furnishings and equipment

• work-related phone and internet expenses, including the decline in value of the handset. An apportionment will be required if the phone or computer is not used exclusively for work

Other working from home expenses

If you work from home but do not have a home office as such, you can still claim deductions for what the ATO call ‘running expenses’.

To make it easier, the ATO allows a rate of 70 cents for each hour worked from home (the fixed rate method). Running expenses for these purposes are energy expenses, internet expenses, mobile and home phone usage expenses and stationery and computer consumables expenses (separate deductions need to be claimed for any other running expenses and depreciation on office equipment or furniture).

Of course, you can still claim based on your actual running expenses if it produces a larger deduction. But remember that those expenses will need to be apportioned between work and private use.

With the fixed rate method, you need to keep a record of the actual number of hours you worked from home for the whole financial year between 1 July and 30 June, and at least one record for each of the additional running expenses you incurred that the rate includes. You must also keep records for other running expenses you are claiming as a separate deduction that the rate doesn’t include.

To show your actual hours worked, this can be as simple as a timesheet, spreadsheet, diary or a record where you log which days you work from home and how many hours you worked.