Quick answer
Employees deduct tools costing $300 or less in full, provided they are not part of a set or a run of identical items over $300, and depreciate anything dearer over its effective life at the work-use percentage. Sole traders and small businesses with turnover under $10 million write off each tool under $20,000 immediately under the instant asset write-off, now permanent, and pool the rest. Repairs, maintenance, and insurance are deducted as incurred. Protective gear has its own rules.
Are tools tax deductible in Australia?
Yes. For employees, the ATO’s rules on tools and equipment turn on cost. A tool costing $300 or less that is used mainly for work can be deducted immediately, subject to four tests: the cost ceiling itself, use mainly for producing non-business income, not being part of a set bought in the same year totalling more than $300, and not being one of several identical items bought in the year totalling more than $300. The set and identical-item tests stop a $900 socket set being split into three $300 receipts. Tools above $300 are depreciating assets: you claim the decline in value over the effective life, work-use portion only.
Sole traders and small businesses have a far simpler path. A business with aggregated turnover under $10 million that uses the simplified depreciation rules can immediately deduct the business portion of any depreciating asset costing less than $20,000, provided it is first used or installed ready for use in the income year. Parliament made that $20,000 threshold permanent from 1 July 2026, so the annual uncertainty about whether it would be extended has ended. Because the limit is per asset, a tradie can write off a compressor, a laser level, and a tile saw in the same year. Assets of $20,000 or more go into the small business pool. The Australian construction and tradie guide covers the trade-specific detail.
Running costs are deductible for everyone. Repairs and maintenance, blades and consumables, insurance on the tool kit, and interest on a loan used to buy tools are deducted in the year incurred at the work-use percentage. Protective items such as safety boots, hard hats, and sunscreen are a separate category of work-related expense and are deductible where the work exposes you to the risk.
How much can you claim?
Employees: the full cost under $300, decline in value above it. Worked example: an employed carpenter buys a $249 impact driver, a $1,650 track saw, and $180 of blades in the year, all used solely for work. The driver and the blades are deducted in full ($429). The track saw is depreciated over its effective life; using the diminishing value method on a 10-year life it gives roughly $330 in the first full year. Total claim about $759.
Sole trader: a self-employed tiler with turnover of $400,000 buys the same three items plus a $7,800 wet saw. Under simplified depreciation every item is under $20,000, so all of it is written off in the year: $9,879 against income, and 1/11th of the GST-inclusive prices back as GST credits on the BAS.
| Claimant | Item | Treatment |
|---|---|---|
| Employee | Tool $300 or less, not part of a set | Immediate deduction |
| Employee | Tool over $300, or set over $300 | Decline in value over effective life |
| Small business (under $10m turnover) | Tool under $20,000 | Instant asset write-off |
| Small business | Tool $20,000 or more | Small business pool, 15% then 30% |
| Anyone | Repairs, consumables, insurance | Deductible as incurred |
| Anyone | Private-use share | Not deductible |
Tools kept in a work vehicle do not change the vehicle claim, but a tool module or trailer is itself an asset and goes through the same rules.
GST on tools
A GST-registered business claims the 10% input tax credit on tools at the business-use percentage. Purchases of $82.50 or more need a valid tax invoice; below that a receipt is enough. Employees are not GST-registered and claim the GST-inclusive cost for income tax. Second-hand tools bought from a private seller carry no GST and no credit.
Record-keeping requirements
Keep the receipt for every tool, including those under $300, once your total work-related claim passes $300. Record the purchase date, cost, and work-use percentage, and for depreciated tools keep a schedule showing the method and effective life. Business records must be kept for five years. A merchant account statement alone is not enough; the itemised invoice is. The Australian record-keeping guide covers acceptable digital records.
How to claim, step by step
- Separate tools under $300 from those over, and check the set and identical-item tests for the cheap ones.
- Employees: deduct the sub-$300 items in full and calculate decline in value on the rest at the work-use percentage; claim both as work-related expenses.
- Small businesses: apply the instant asset write-off to each tool under $20,000 first used in the year; pool anything at $20,000 or more.
- Deduct repairs, consumables, and insurance as operating expenses.
- Claim GST credits on the BAS with tax invoices for purchases of $82.50 or more.
- Keep receipts and the depreciation schedule for five years.
Common mistakes
- Splitting a set across receipts to get under $300.
- Employees claiming the $20,000 instant asset write-off, which is for businesses only.
- Claiming 100% of a tool that is also used for home projects.
- Treating a replacement tool as a repair.
- Discarding receipts for sub-$300 tools when the total claim exceeds $300.
Software that helps
- Dext captures merchant receipts by photo so nothing stays in the ute.
- ExpenseFlow reads tool and merchant invoices with frontier vision AI, codes each line to an expense or fixed asset account using the $20,000 instant asset write-off line, explains the call under the line, lowers its confidence so a reviewer decides when the invoice does not settle it, and syncs approved items to Xero with the receipt attached, or to QuickBooks Online as a coded bill.
- Xero carries a fixed asset register that applies the small business pool automatically.
FAQ
See the answered questions above for the $300 rule, decline in value, the instant asset write-off, repairs, and receipts.
From ExpenseFlow
GST coding on autopilot
ExpenseFlow reads every receipt, assigns the right GST treatment and account code, and syncs to Xero or QuickBooks Online once you approve.