au-sole-trader-schedule

Files (1)

• SKILL.md

SKILL.md (first lines)

# 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](https://www.abr.gov.au/business-super-funds-charities/applying-abn/abn-entitlement).

## 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](https://www.legislation.gov.au/C2026A00071/asmade/text). | 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](https://www.legislation.gov.au/C2026A00071/asmade/text).
- **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  _(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)  _(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](https://www.ato.gov.au/api/public/content/5861f7f47efa45d5b76332ef12919ace?v=a0a2f777) 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.

From openaccountants/openaccountants, AGPL-3.0.

More from openaccountants/openaccountants