AU Sole Trader Schedule

AU Sole Trader Schedule

AU Sole Trader Schedule

Australia Sole Trader Business Schedule v1.2

What this file is

Obligation category: IT (Income Tax) Functional role: Bookkeeping + Computation Status: Complete

This file covers the Business and Professional Items (BPI) schedule that sole traders attach to their individual income tax return. The BPI schedule feeds into the individual return at "Business income or loss" items.

Tax year coverage: This skill targets the 2025–26 income year (1 July 2025 to 30 June 2026). Match the intake and assembly year before calculating.

The reviewer is the customer of this output. This skill assumes a credentialed reviewer reviews and signs the return. The skill produces working papers and a brief, not a return.

Section 1 — Scope statement

This skill covers:

• Forms: Business and Professional Items Schedule for Individuals (NAT 2816)
• Entity types: Sole proprietors operating a business or profession in their individual capacity
• All items P1 through P20 on the schedule

This skill does NOT cover:

• Partnerships (use partnership schedule)
• Companies, trusts, or superannuation funds
• Primary production-specific items (though basic rules noted)
• Personal services income (PSI) determinations in detail — flag for reviewer

Section 2 — Filing requirements

2.1 Who must lodge

• Who must lodge — Any individual who carried on a business as a sole trader during the income year. Even if the business made a loss, the schedule must be lodged. (ITAA 1997 s 4-15, ATO instructions for BPI schedule)

2.2 Due dates

Due dates

Lodgement type	Due date
Self-lodgers	2 November 2026 (31 October falls on Saturday; check applicable extensions)
Tax agent lodgement	Per the ATO tax agent lodgement programme (2026–27 programme, depending on client category)

2.3 ABN requirement

• ABN requirement — Check ABN entitlement, GST registration and withholding consequences separately. An ABN is not compulsory for every business activity. A tax invoice must meet GST requirements, and eligible payments without an ABN can attract 47% withholding subject to exceptions. (ABR)

Section 3 — Rates and thresholds

Rates and thresholds (ITAA 1997 Div 328; ATO QC 103578)

Item	Amount / Rate	Source
Instant asset write-off threshold	For 2025–26, eligible small business entities using simplified depreciation can deduct assets costing less than $20,000 when first used or installed ready for taxable use. The permanent threshold was enacted on 26 August 2026; schedule 2 commences on 1 October 2026 and applies to specified first use or installation from 1 July 2026. Tax Reform No. 2 Act 2026, schedules 1–2.	ITAA 1997 Subdivision 328-D
Small business entity threshold	Aggregated turnover < $10M	ITAA 1997 s 328-110
Cents per km rate (motor vehicle)	88 cents per km (2024-25 and 2025-26); 91 cents (2026-27)	ATO cents per kilometre method
Cents per km cap	5,000 business km per car per year	ITAA 1997 s 28-25
Home office fixed rate	70 cents per hour (2024-25 through 2026-27; 67c applied 2022-23 and 2023-24)	ATO PCG 2023/1
Trading stock threshold (change in value)	$5,000: if an eligible small business entity reasonably estimates that the difference between opening and closing stock is $5,000 or less, the taxpayer can elect not to do a stocktake	ITAA 1997 s 328-285
Prepaid expenses (SBE)	Immediately deductible if the service period is 12 months or less and ends on or before 30 June of the following year	ITAA 1936 ss 82KZL and 82KZM

• Instant asset write-off threshold — For 2025–26, eligible small business entities using simplified depreciation can deduct assets costing less than $20,000 when first used or installed ready for taxable use. The permanent threshold was enacted on 26 August 2026; schedule 2 commences on 1 October 2026 and applies to specified first use or installation from 1 July 2026. Tax Reform No. 2 Act 2026, schedules 1–2. (ITAA 1997 Subdivision 328-D)
• Small business entity threshold — Aggregated turnover < $10M (ITAA 1997 s 328-110)
• Cents per km rate (motor vehicle) — 88 cents per km for 2024-25 and 2025-26; 91 cents per km from 2026-27 cents per km (ATO cents per kilometre method)
• Cents per km cap — 5,000 business km per car per year (ITAA 1997 s 28-25)
• Home office fixed rate — 70 cents per hour for 2024-25 through 2026-27 (67c applied for 2022-23 and 2023-24) cents per hour (ATO PCG 2023/1)
• Trading stock threshold (change in value) — $5,000: if an eligible small business entity reasonably estimates that the difference between opening and closing stock is $5,000 or less, the taxpayer can elect not to do a stocktake (ITAA 1997 s 328-285)
• Prepaid expenses (SBE) — Immediately deductible if the service period is 12 months or less and ends on or before 30 June of the following year (ITAA 1936 ss 82KZL and 82KZM)

Section 4 — Computation rules

4.1 Business income (P8)

• Business income (P8) — Step 1. Sum all gross business income received during the year: Sales of goods or services; Government subsidies (e.g., any remaining COVID-era grants assessable); Insurance recoveries; Commissions received. Step 2. Exclude amounts that are capital in nature (these go to the CGT schedule). Step 3. Report at P8 on the schedule.

4.2 Cost of sales / Cost of goods sold

• Cost of goods sold — Step 1. Opening stock + Purchases - Closing stock = Cost of goods sold. Step 2. Trading stock can be valued at cost, market selling value, or replacement value (ITAA 1997 s 70-45). The method can differ item by item. Step 3. If an eligible small business entity reasonably estimates that year-end trading stock differs from opening stock by $5,000 or less (s 328-285), the taxpayer can elect to use the same value as opening stock (no stocktake required). (ITAA 1997 s 70-45)

4.3 Allowable deductions

• General deduction provision — Deductions must satisfy the general deduction provision: incurred in gaining or producing assessable income, or necessarily incurred in carrying on a business for that purpose. Losses and outgoings of a capital, private, or domestic nature are not deductible (subject to specific provisions). (ITAA 1997 s 8-1)

Key deduction categories on the schedule

Schedule area	Category	Notes
P8 expenses	Motor vehicle expenses	Use the year-specific expense label and method
P8 expenses	Depreciation	Reconcile to the depreciation schedule
P8 expenses	Repairs and maintenance	Distinguish capital expenditure
P8 expenses	Interest	Use the correct domestic/overseas label and business portion
P8 expenses	Rent	Business premises; assess home occupancy separately
P8 expenses	Other expenses	Classify into specific P8 expense labels where available

P9 records business loss activity details, not motor expenses. P10 and later items request separate business information, not a sequence of ordinary expense categories. Use the issued year’s form. ATO 2025 business schedule instructions establish this P8/P9 distinction. Verify the issued 2026 form before transferring labels.

4.4 Motor vehicle expenses

Two methods available for sole traders:

Method 1 — Cents per kilometre

• Cents per kilometre method — Claim the current rate per business km, up to 5,000 km per car per year. 2025-26: 88c, maximum claim = 5,000 x $0.88 = $4,400 per car. 2026-27: 91c, maximum = $4,550. No logbook or written evidence of individual trips required, but must be able to show how the estimate was calculated. (ATO cents per kilometre method; ITAA 1997 s 28-25)

Method 2 — Logbook

• Logbook method — Maintain a logbook for a continuous 12-week period (valid for 5 years unless circumstances change). Calculate business-use percentage from logbook. Apply that percentage to total car expenses: fuel, insurance, registration, repairs, lease payments, depreciation. Depreciation of the car is capped at the car limit ($69,674 for 2024-25 and 2025-26; $69,883 for 2026-27). (ATO car limit determination)

4.5 Depreciation

Small business simplified depreciation (if SBE)

• Small business simplified depreciation — Step 1. Check eligibility: aggregated turnover < $10M. Step 2. Instant asset write-off: assets costing less than $20,000 (excl GST if registered) first used or installed ready for use in the income year are fully deductible in that year. Step 3. Assets costing $20,000 or more go into the small business pool: Pool is depreciated at 15% in the first year and 30% each year thereafter (diminishing value). If the pool balance falls below the instant asset write-off threshold at the end of the year, the entire pool is written off.

General depreciation (non-SBE or election out of simplified)

• General depreciation — Use the effective life determined by the ATO (Income Tax Assessment (Effective Life of Depreciating Assets) Determination 2025) or a self-assessed effective life. Choose diminishing value (rate = 200% / effective life) or prime cost (rate = 100% / effective life). Apply from the date the asset is first used or installed ready for use. (ATO Income Tax Assessment (Effective Life of Depreciating Assets) Determination 2025)

4.6 Home office expenses

Fixed rate method (70c per hour from 2024-25) — PCG 2023/1

• Fixed rate method — Covers energy expenses (electricity, gas), phone, internet, stationery, computer consumables. Must keep a record of actual hours worked from home (e.g., timesheets, diary, roster). Separately claim occupancy expenses (rent, mortgage interest, rates, insurance) only if the home is a place of business (rare for sole traders without a dedicated area). Cannot separately claim expenses already covered by the fixed rate (70c from 2024-25). (ATO PCG 2023/1)

Actual cost method

• Actual cost method — Calculate the actual costs of running the home office. Apportion based on floor area of the dedicated work area as a percentage of total home area, and the proportion of the year the area is used for work. Keep receipts and records for every expense claimed.

4.7 Net business income or loss (P8)

• Net business income or loss (P8) — Sum the P8 income and deductible expenses using the applicable accounting method and tax adjustments. The established mapping is P8 label Z to supplementary return question 15 label C for non-primary-production net income or loss; confirm those labels against the issued 2026 form. ATO transfer instructions. If there is a loss, complete P9 and test Division 35: the adjusted-income requirement must be less than $250,000 before relying on the assessable-income, profits, real-property or other-assets tests. Assess statutory exceptions and Commissioner discretion separately. Otherwise defer the loss. (ITAA 1997 s 35-10)

Section 5 — Edge cases and special rules

5.1 Personal services income (PSI)

• Personal services income (PSI) — Screen each amount for whether it is mainly, ordinarily more than half, a reward for personal effort or skills. Then apply the separate personal services business tests. The 80% source-concentration rule is not the definition of PSI; consider the results test and other tests/determination rules in their proper order. Refer uncertain cases for review. (ITAA 1997 s 84-5 and TR 2022/3)

5.2 Mixed-use assets

• Mixed-use assets — Assets used partly for private and partly for business purposes: claim only the business-use percentage. Maintain records of the split (e.g., logbook for car, diary for home office).

5.3 Prepaid expenses (SBE)

• Prepaid expenses (SBE) — Small business entities can immediately deduct prepaid expenses if the service period is 12 months or less and ends by 30 June of the following income year. Example: 12-month insurance premium paid in May 2026 covering May 2026 to April 2027: deductible in 2025–26 if the statutory conditions are met.

5.4 Capital vs revenue

• Capital vs revenue — Expenditure that creates a new asset or provides an enduring benefit is capital and not deductible under s 8-1. It may instead be depreciable or added to the cost base for CGT purposes. Common grey areas: website development, major software, business restructuring costs. (ITAA 1997 s 8-1)

5.5 Hobby vs business

• Hobby vs business — The ATO may deny deductions if the activity is a hobby, not a business. Indicators of a business: intention to make a profit, repetition and regularity, business-like organisation, size and scale, business plan. (ATO guidelines, TR 97/11)

Section 6 — Self-checks

Before delivering output, verify:

• All income items trace to source documents (invoices, bank statements)
• Deductions satisfy s 8-1 nexus to assessable income
• Motor vehicle method is consistently applied (not both methods for same car)
• Depreciation method matches SBE or general rules as applicable
• Instant asset write-off threshold ($20,000) is correctly applied
• Home office hours are supported by records (if fixed rate method)
• Non-commercial loss rules checked if a loss is reported
• PSI risk flagged if applicable
• Trading stock valuation method is documented
• Rates and thresholds match the 2025–26 income year
• Output format matches the base skill spec

Section 7 — 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, EA, tax attorney, or equivalent licensed practitioner 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.

Contributed by Ryan Duguid.

Contributed by Ryan Duguid.