Australia Individual Income Tax -- Sole Trader Skill v2.0

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Section 1 -- Quick Reference

Field	Value
Country	Australia
Tax	Income tax + Medicare levy + HELP repayments (if applicable)
Currency	AUD only
Tax year	1 July 2024 -- 30 June 2025
Primary legislation	Income Tax Assessment Act 1997 (ITAA 1997); Income Tax Assessment Act 1936 (ITAA 1936)
Supporting legislation	Tax Administration Act 1953; Medicare Levy Act 1986; Higher Education Support Act 2003
Tax authority	Australian Taxation Office (ATO)
Filing portal	myTax (via myGov) or registered tax agent
Filing deadline	31 October 2025 (self-lodged); May 2026 (tax agent)
Contributor	Open Accountants Community
Validated by	Pending -- Australian CPA/CA sign-off required
Skill version	2.0

Tax Rates -- Resident Individual (2024-25, Stage 3) [T1]

Taxable Income (AUD)	Rate	Tax on This Band
0 -- 18,200	0%	Tax-free threshold
18,201 -- 45,000	16%	Max $4,288
45,001 -- 135,000	30%	Max $27,000
135,001 -- 190,000	37%	Max $20,350
190,001+	45%

Medicare Levy [T1]

Item	Value
Rate	2% of taxable income
Low-income threshold (single)	$26,000 (no levy below; phase-in to $32,500)
Low-income threshold (family)	$43,846 + $4,027 per dependent child
Surcharge (no private hospital cover)	Additional 1%-1.5% if income over $93,000 (single)

Low Income Tax Offset (LITO) [T1]

Taxable Income (AUD)	LITO
Up to $45,000	$700
$45,001 -- $66,667	Reduces by 5c per $1 over $45,000
$66,668+	$0

Small Business Income Tax Offset (SBITO) [T1]

Item	Value
Rate	16% of income tax on business income
Cap	$1,000
Eligibility	Aggregated turnover under $5 million (individuals and trusts only)

Key Deduction Rates [T1]

Item	Rate
Home office -- fixed rate method	67 cents per hour
Motor vehicle -- cents per km method	88 cents per km (max 5,000 km)
Instant asset write-off (small business)	$20,000 threshold (assets under $20,000 immediately deductible)
Superannuation (deductible personal contribution)	Up to $30,000 concessional cap

Conservative Defaults [T1]

Ambiguity	Default
Unknown residency status	Australian resident (but STOP if genuinely unclear)
Unknown business-use % (vehicle, phone, home)	0% deduction
Unknown expense category	Not deductible
Unknown depreciation effective life	Use ATO's Table of Depreciation
Unknown private health insurance status	No cover (Medicare levy surcharge may apply)
Unknown aggregated turnover	Over $10 million (no small business concessions)

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Section 2 -- Required Inputs and Refusal Catalogue

Required Inputs

Minimum viable -- bank statement for the full financial year (1 July to 30 June), confirmation of ABN/TFN, and whether the taxpayer is an Australian resident.

Recommended -- all tax invoices issued, purchase receipts, PAYG payment summaries or income statements (via myGov), prior year tax return, BAS lodgments.

Ideal -- complete bookkeeping records, depreciation schedule, motor vehicle logbook, home office hours log, private health insurance statement, HELP debt balance.

Refusal Catalogue

R-AU-1 -- Companies and trusts. "Companies lodge company tax returns. Trusts lodge trust returns. This skill covers individual sole traders only."

R-AU-2 -- Non-residents. "Non-resident tax rates and rules differ significantly. Out of scope."

R-AU-3 -- Capital gains tax events. "CGT events require specialised computation (cost base, discounts, exemptions). Out of scope."

R-AU-4 -- Complex depreciation (effective life disputes). "Where the ATO effective life is contested or the asset has no published rate, escalate."

R-AU-5 -- Partnership or PSI (Personal Services Income). "PSI rules and partnership allocations require separate analysis. Escalate."

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Section 3 -- Transaction Pattern Library

3.1 Income Patterns (Credits on Bank Statement)

Pattern	Tax Label	Treatment	Notes
ABN INCOME, CLIENT PAYMENT, [client name]	Business income (Item P8)	Gross business income	Core sole trader income
STRIPE PAYOUT, STRIPE TRANSFER	Business income	Revenue	Match to underlying invoices
PAYPAL TRANSFER	Business income	Revenue	Report gross before fees
DIRECT CREDIT [client name]	Business income	Revenue	Bank transfer from client
INTEREST, SAVINGS INTEREST	Interest income (Item 10)	NOT business income	Report separately as interest
DIVIDEND, DISTRIBUTION	Dividend income (Item 11)	NOT business income	Report separately. Include franking credits.
FRANKING CREDIT	Gross-up dividend	Add to assessable income	Franking credit is both income and tax offset
ATO REFUND, TAX REFUND	EXCLUDE	Not income	Prior year tax refund
CENTRELINK, JOBSEEKER, YOUTH ALLOWANCE	Government payment (Item 6)	May be taxable	Check specific payment type
SUPERANNUATION (lump sum or pension)	Item 7 or 8	Check	Depends on age and components
OWN TRANSFER, SAVINGS	EXCLUDE	Internal	Between own accounts
RENTAL INCOME	Rental income (Item 21)	NOT business income	Separate rental schedule

3.2 Expense Patterns (Debits on Bank Statement)

Pattern	Deduction Category	Tier	Treatment
RENT, OFFICE RENT, SERVICED OFFICE	Business expense -- occupancy	T1	Fully deductible if dedicated business premises
HOME OFFICE, WORK FROM HOME	Home office deduction (D5)	T2	Fixed rate 67c/hr OR actual cost method. See Tier 2.
PETROL, FUEL, CALTEX, BP, SHELL, AMPOL	Motor vehicle (D1)	T2	Cents/km (88c, max 5,000 km) OR logbook method
CAR INSURANCE, REGO, SERVICE	Motor vehicle	T2	Only under logbook method (not cents/km)
TOLL, CITYLINK, LINKT	Motor vehicle or travel	T1	Business travel tolls: deductible under either method
FLIGHT, QANTAS, VIRGIN, JETSTAR	Travel (D2)	T1	Fully deductible if business travel
ACCOMMODATION, HOTEL	Travel	T1	Deductible if business travel with overnight stay
MEALS (business travel, overnight)	Travel	T1	Reasonable amount while travelling overnight
MEALS (client entertainment)	NOT deductible	T1	Entertainment: NOT deductible for sole traders
INSURANCE, PROFESSIONAL INDEMNITY	Business expense -- insurance	T1	Fully deductible
INCOME PROTECTION INSURANCE	Deduction (D15)	T1	Fully deductible (personal deduction, not business)
ACCOUNTING, TAX AGENT, BAS AGENT	Cost of managing tax affairs (D10)	T1	Fully deductible
OFFICE SUPPLIES, OFFICEWORKS	Business expense	T1	Fully deductible
SOFTWARE, SUBSCRIPTION, XERO, MYOB	Business expense -- IT	T1	Fully deductible
GOOGLE ADS, META ADS, FACEBOOK ADS	Business expense -- advertising	T1	Fully deductible
PHONE, TELSTRA, OPTUS, VODAFONE	Business expense -- telecom	T2	Business portion only
INTERNET, NBN	Business expense -- telecom	T2	Business portion only (or included in home office 67c rate)
TRAINING, COURSE, SELF-EDUCATION	Self-education (D4)	T1	Deductible if directly related to current income-producing activity. NOT deductible if for new career.
COMPUTER, LAPTOP, EQUIPMENT (under $20,000)	Instant asset write-off	T1	Immediately deductible if small business entity and cost < $20,000
COMPUTER, LAPTOP, EQUIPMENT (over $20,000)	Depreciation (D2 business)	T1	Depreciate over effective life per ATO table
SUPER CONTRIBUTION, SUNSUPER, AUSTRALIAN SUPER	Deduction (Item D12)	T1	Personal deductible super contribution up to $30,000 concessional cap. Must lodge notice of intent.
ATO TAX, INCOME TAX, PAYG INSTALMENT	EXCLUDE	Not deductible	Tax payments are not deductions
GST PAYMENT, BAS PAYMENT	EXCLUDE from income tax	T1	GST is separate. Report net of GST if registered.
PRIVATE HEALTH, MEDIBANK, BUPA, NIB, HCF	NOT a deduction (but affects MLS)	T1	Private health insurance is NOT tax deductible. But having it avoids Medicare Levy Surcharge. PHI rebate claimed separately.
PERSONAL, GROCERY, ENTERTAINMENT	EXCLUDE	Not deductible	Personal expenses
DONATION, CHARITY, DGR	Tax offset (Item D9)	T1	Deductible if to a deductible gift recipient (DGR). Must be $2+ and genuinely a gift.

3.3 SaaS Subscriptions

Pattern	Treatment	Notes
GOOGLE WORKSPACE, MICROSOFT 365, ADOBE	Fully deductible business expense	Operating expense
SLACK, ZOOM, NOTION, FIGMA, GITHUB	Fully deductible	Same
AWS, HEROKU, DIGITAL OCEAN	Fully deductible	Hosting costs
CANVA (AU entity)	Fully deductible	Australian company
XERO, MYOB	Fully deductible (cost of managing tax affairs or business expense)	Accounting software
SPOTIFY, NETFLIX	NOT deductible	Personal entertainment

3.4 Internal Transfers and Exclusions

Pattern	Treatment	Notes
TRANSFER, SAVINGS, TERM DEPOSIT	EXCLUDE	Internal movement
MORTGAGE, HOME LOAN	EXCLUDE (or home office %)	Personal. Home office actual costs method only.
ATM, CASH	T2 -- ask	Default exclude
HECS REPAYMENT, HELP	NOT a deduction	Compulsory repayment is not a tax deduction

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Section 4 -- Worked Examples

Example 1 -- Standard Sole Trader (Graphic Designer)

Input: ABN income AUD 92,000. Business expenses: software AUD 3,600, advertising AUD 1,200, accounting AUD 1,100, office supplies AUD 800. Home office 1,200 hours at 67c/hr. Car 4,000 business km at 88c/km. No other income. No HELP debt. Has PHI.

Computation:

• Business income: AUD 92,000
• Expenses: 3,600 + 1,200 + 1,100 + 800 = AUD 6,700
• Home office: 1,200 x 0.67 = AUD 804
• Motor vehicle: 4,000 x 0.88 = AUD 3,520
• Total deductions: 6,700 + 804 + 3,520 = AUD 11,024
• Taxable income: 92,000 - 11,024 = AUD 80,976
• Tax: 0 + 4,288 + (80,976 - 45,000) x 30% = 4,288 + 10,793 = AUD 15,081
• Medicare: 80,976 x 2% = AUD 1,620
• LITO: $0 (income > $66,667)
• SBITO: 16% x (tax attributable to business income) -- business is 100% of income, so 16% x 15,081 = 2,413, capped at AUD 1,000
• Final tax: 15,081 + 1,620 - 1,000 = AUD 15,701

Example 2 -- Instant Asset Write-Off

Input: Small business entity (turnover < $10M). Purchases laptop AUD 2,800 and monitor AUD 950. Both under $20,000.

Classification: Both items are immediately deductible under the instant asset write-off. Total deduction: AUD 3,750 in the year of purchase. No depreciation schedule needed.

Example 3 -- Motor Vehicle (Logbook vs Cents/Km)

Input: Total km: 20,000. Business km: 12,000 (60%). Car costs: fuel AUD 4,800, insurance AUD 1,600, rego AUD 800, service AUD 1,200, depreciation AUD 4,000. Total AUD 12,400.

Computation:

• Cents/km: min(12,000, 5,000) x $0.88 = AUD 4,400 (capped at 5,000 km)
• Logbook: 12,400 x 60% = AUD 7,440
• Logbook method is significantly more beneficial. But requires a valid logbook kept for a continuous 12-week period.
• [T2] Flag: confirm logbook exists and is valid.

Example 4 -- Home Office (Fixed Rate vs Actual)

Input: Works from home 1,600 hours/year. Dedicated office in 3-bedroom house (1/4 area). Electricity AUD 2,400, internet AUD 1,200, phone AUD 960 (80% business), depreciation on furniture AUD 400.

Computation:

• Fixed rate: 1,600 x $0.67 = AUD 1,072 (covers electricity, gas, phone, internet, stationery, depreciation of furniture)
• Actual cost: electricity 1/4 x AUD 2,400 = AUD 600. Internet 80% x AUD 1,200 = AUD 960. Phone 80% x AUD 960 = AUD 768. Depreciation AUD 400. Total = AUD 2,728.
• Actual method is significantly better here.
• Under fixed rate: only computer/printer depreciation and occupancy expenses (rent, mortgage interest, rates, insurance) can be claimed additionally. Under actual: each item claimed individually.
• [T2] Flag: confirm method choice and occupancy costs if actual.

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Section 5 -- Tier 1 Rules (When Data Is Clear)

5.1 Business Income [T1]

Legislation: ITAA 1997 Div 6

All amounts derived from carrying on a business. If GST-registered, report net of GST. If not registered, report gross.

5.2 General Deduction [T1]

Legislation: ITAA 1997 s8-1

A deduction for any loss or outgoing to the extent it is incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business. Must not be private, domestic, or capital in nature.

5.3 Depreciation [T1]

Legislation: ITAA 1997 Div 40

Method	Calculation
Diminishing value	Base value x (days held / 365) x (200% / effective life)
Prime cost (straight line)	Cost x (days held / 365) x (100% / effective life)

Small business entity (turnover < $10M): can use simplified depreciation -- pool all assets over $20,000 at 15% first year, 30% thereafter.

Instant asset write-off: Assets costing less than $20,000 (2024-25) can be immediately deducted by small business entities. This threshold may change each year -- confirm for current year.

5.4 Superannuation [T1]

Personal deductible contributions up to $30,000 concessional cap (combined with employer contributions if also employed). Must lodge a valid "Notice of intent to claim" with the super fund AND receive acknowledgment BEFORE lodging the tax return or rolling over.

5.5 HELP/HECS Repayment [T1]

Repayment Income (2024-25)	Rate
Below $54,435	0%
$54,435 -- $62,850	1%
$62,851 -- $66,620	2%
$66,621 -- $70,618	2.5%
... (progressive to)	...
$151,201+	10%

Repayment income = taxable income + reportable fringe benefits + net investment losses + reportable super. HELP repayments are NOT deductible.

5.6 Filing and Penalties [T1]

Item	Value
Self-lodge deadline	31 October 2025
Tax agent deadline	Varies (typically March-May 2026)
Failure to lodge on time	$313 per 28-day period, up to 5 periods ($1,565 max)
Shortfall penalty (reasonable care not taken)	25% of shortfall
Shortfall penalty (recklessness)	50% of shortfall
General Interest Charge (GIC)	~11% annually (varies quarterly)

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Section 6 -- Tier 2 Catalogue (Reviewer Judgement Required)

6.1 Home Office [T2]

Two methods (from 1 July 2022):

Method	What It Covers	Additional Claims
Fixed rate (67c/hr)	Electricity, gas, phone, internet, stationery, computer/printer ink	Separately claim: technology depreciation (computer, monitor), occupancy costs (if dedicated room), cleaning
Actual cost	Each expense claimed individually at actual business %	No fixed rate component

Under either method: must have records of hours worked from home. Fixed rate: can use any reasonable record. Actual: need receipts and usage records.

Occupancy expenses (rent, mortgage interest, rates, home insurance, land tax) are ONLY deductible if you have a dedicated area set aside exclusively as a place of business. These are separate from running expenses.

Flag for reviewer: Confirm method, hours, and whether occupancy expenses apply.

6.2 Motor Vehicle [T2]

Method	How It Works	Records
Cents per km (88c)	Max 5,000 business km. No receipts needed.	Reasonable estimate of business km
Logbook	Business % of actual costs including depreciation	12-week continuous logbook, valid for 5 years

Cannot claim both. Parking, tolls, and roadside assistance are separate and deductible under either method for business trips.

Flag for reviewer: Confirm method and km/logbook records.

6.3 Private Health Insurance (Medicare Levy Surcharge) [T2]

If income over $93,000 (single) and no appropriate private hospital cover, Medicare levy surcharge applies:

Income	MLS Rate
$93,001 -- $108,000	1%
$108,001 -- $144,000	1.25%
$144,001+	1.5%

PHI rebate: income-tested offset that reduces PHI premiums. Claimed via reduced premiums or tax offset.

Flag for reviewer: Confirm PHI status and income level.

6.4 Personal Services Income (PSI) [T2]

If income is mainly a reward for personal efforts/skills and not from conducting a personal services business, PSI rules limit deductions. Cannot claim rent, mortgage interest, certain home office costs against PSI.

Flag for reviewer: Confirm whether PSI rules apply (results test, unrelated clients test, employment test, business premises test).

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Section 7 -- Excel Working Paper Template

AUSTRALIAN INDIVIDUAL TAX RETURN -- Working Paper
Tax Year: 2024-25

A. INCOME
  A1. Business income (ABN income)                 ___________
  A2. Employment income (per income statement)     ___________
  A3. Interest income                              ___________
  A4. Dividend income (grossed up with franking)   ___________
  A5. Rental income (net)                          ___________
  A6. Other income                                 ___________
  A7. TOTAL ASSESSABLE INCOME                      ___________

B. DEDUCTIONS
  B1. Business expenses (direct)                   ___________
  B2. Home office (67c/hr or actual)               ___________
  B3. Motor vehicle (88c/km or logbook)            ___________
  B4. Travel (flights, accommodation)              ___________
  B5. Self-education                               ___________
  B6. Depreciation / instant asset write-off       ___________
  B7. Personal super contributions                 ___________
  B8. Income protection insurance                  ___________
  B9. Cost of managing tax affairs                 ___________
  B10. Donations (DGR)                             ___________
  B11. Other deductions                            ___________
  B12. TOTAL DEDUCTIONS                            ___________

C. TAXABLE INCOME (A7 - B12)                       ___________

D. TAX COMPUTATION
  D1. Tax on taxable income (Stage 3 rates)        ___________
  D2. Medicare levy (2%)                           ___________
  D3. Medicare levy surcharge (if applicable)      ___________
  D4. HELP/HECS repayment (if applicable)          ___________
  D5. Gross tax                                    ___________
  D6. Less: LITO                                   ___________
  D7. Less: SBITO (16%, max $1,000)                ___________
  D8. Less: Franking credits offset                ___________
  D9. Less: PHI rebate offset                      ___________
  D10. Less: PAYG instalments paid                 ___________
  D11. Less: PAYG withholding (employment)         ___________
  D12. TAX DUE / (REFUND)                          ___________

REVIEWER FLAGS:
  [ ] Residency status confirmed?
  [ ] Home office method and hours verified?
  [ ] Motor vehicle method confirmed?
  [ ] Instant asset write-off eligibility (SBE < $10M)?
  [ ] Super contribution notice of intent lodged?
  [ ] PHI status confirmed (MLS)?
  [ ] HELP debt status confirmed?
  [ ] All T2 items flagged?

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Section 8 -- Bank Statement Reading Guide

Australian Bank Statement Formats

Bank	Format	Key Fields
CBA, ANZ, Westpac, NAB	CSV, PDF	Date, Description, Debit, Credit, Balance
Macquarie, Suncorp, Bendigo	CSV	Date, Narrative, Amount
Up, ING, Ubank	CSV	Date, Description, Amount
Wise, Revolut	CSV	Date, Description, Amount, Currency

Key Australian Banking Terms

Term	Classification Hint
Direct Credit	Incoming payment -- could be income
Direct Debit	Regular outgoing -- likely expense
EFTPOS	Point-of-sale purchase
BPAY	Bill payment
Osko / PayID	Fast payment -- check direction
ATM	Cash withdrawal -- ask purpose
Interest Paid	Income -- report separately
Dividend	Income -- check franking

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Section 9 -- Onboarding Fallback

ONBOARDING QUESTIONS -- AUSTRALIA INDIVIDUAL RETURN
1. Are you an Australian resident for tax purposes?
2. Do you have an active ABN and TFN?
3. Are you registered for GST?
4. What is your aggregated turnover? (for small business concessions)
5. Do you work from home? How many hours per year? Method preference (67c or actual)?
6. Do you use a vehicle for business? Method preference (cents/km or logbook)?
7. Any assets purchased this year? Cost?
8. Do you have private health insurance? Full year?
9. Do you have a HELP/HECS debt?
10. Are you also employed (PAYG income)?
11. Any personal super contributions made?
12. Prior year tax return / depreciation schedule available?

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Section 10 -- Reference Material

Key Legislation

Topic	Reference
Assessable income	ITAA 1997 s6-1, s6-5
General deduction	ITAA 1997 s8-1
Capital vs revenue	ITAA 1997 s8-1(2)(a)
Depreciation	ITAA 1997 Div 40
Small business entity	ITAA 1997 Div 328
Instant asset write-off	ITAA 1997 s328-180
Home office	ATO Practical Compliance Guideline PCG 2023/1
Motor vehicle	ITAA 1997 s28-13, s28-15
Superannuation deduction	ITAA 1997 Div 290
Medicare levy	Medicare Levy Act 1986
HELP repayments	Higher Education Support Act 2003
LITO	ITAA 1997 s61-1
SBITO	ITAA 1997 s328-375

Interaction with GST [T1]

Scenario	Income Tax Treatment
GST collected on sales (registered)	NOT income. Report net of GST.
GST credits (ITC) recovered	NOT an expense. Report net of GST.
Not registered for GST	GST paid on purchases IS part of the cost. Report gross.
GST on private portion	Non-claimable GST is part of cost.

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PROHIBITIONS

• NEVER allow private or domestic expenses as business deductions
• NEVER allow entertainment expenses for sole traders (not deductible)
• NEVER claim more than 5,000 km under the cents-per-km method
• NEVER claim occupancy expenses (rent, mortgage interest) for home office unless dedicated area exclusively for business
• NEVER forget to lodge notice of intent for personal super contributions
• NEVER claim HELP repayments as a deduction
• NEVER claim private health insurance premiums as a deduction
• NEVER apply the instant asset write-off without confirming small business entity status
• NEVER include income tax or GST payments as business deductions
• NEVER report GST-inclusive amounts if GST-registered
• NEVER present tax calculations as definitive -- always label as estimated

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Disclaimer

This skill and its outputs are provided for informational and computational purposes only and do not constitute tax, legal, or financial advice. Open Accountants and its contributors accept no liability for any errors, omissions, or outcomes arising from the use of this skill. All outputs must be reviewed and signed off by a qualified professional (such as a CPA, CA, or registered tax agent in your jurisdiction) before filing or acting upon.

The most up-to-date, verified version of this skill is maintained at openaccountants.com. Log in to access the latest version, request a professional review from a licensed accountant, and track updates as tax law changes.

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