For educational purposes only. Not tax, legal, or financial advice. Tax laws change frequently. Consult a registered tax agent or CPA for your specific situation.
Australian consultants, freelancers, and coaches pay income tax on trading profit (sole trader) or company tax at 25% base rate (Pty Ltd), but the PSI rules under Part 2-42 ITAA 1997 can attribute company profits back to the individual if no Personal Services Business test is passed. GST registration is compulsory at $75,000 turnover. Client entertainment is not deductible. Professional indemnity insurance, home office running costs, and professional development are the key claimable categories.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact ATO. Read our editorial scope →
Consultants, freelancers, and coaches sell time, expertise, and advice, which is exactly what the ATO targets as Personal Services Income. The PSI rules under Part 2-42 ITAA 1997 determine whether your Pty Ltd or trust structure delivers any tax benefit, or whether net income is attributed straight back to you as an individual. Beyond PSI, the key obligations are income tax on trading profit (sole trader) or 25% base rate entity tax (Pty Ltd), GST registration once turnover hits $75,000, and getting home office deductions, travel, professional development, and professional indemnity insurance right. Client entertainment is a persistent trap: the ATO treats restaurant meals and event tickets with a social element as non-deductible entertainment, not business expenses.
What business structure do Consultants and Freelancers use?
The common patterns for Consultants and Freelancers are: Sole trader: simplest setup, ABN registration only, suits solo consultants and coaches under roughly $100k profit who accept PSI attribution as unavoidable, Pty Ltd company: limited liability for contract disputes, access to 25% base rate entity tax, but PSI rules negate the benefit entirely if no PSB test is passed, Trust or partnership: used for family income splitting in consulting practices, but ineffective for PSI income unless a PSB test is satisfied (s.100A risk applies to non-arm's-length distributions). The right structure depends on revenue, liability exposure, and personal circumstances, covered below.
How do the PSI rules apply to consultants, freelancers, and coaches?
Consultants and coaches are core PSI territory. If more than 50% of what you receive for a contract is a reward for your personal labour, skills, or expertise, the income is PSI. This applies whether you operate as a sole trader, through a Pty Ltd, or via a trust.
When PSI rules apply: net income is attributed to the individual whose efforts generated it, income splitting to family members through a company or trust is ineffective, and certain business-structure deductions are denied (payments to associates, residence costs beyond standard working-from-home rules).
To escape PSI attribution, you must pass a Personal Services Business test. The results test is the most favourable: you must be paid for a specific result (not time), provide your own tools, and be liable for defects at your own cost. Fixed-fee project deliverables with milestone payments and contractual defect clauses satisfy this. Hourly retainers paid for availability do not.
The unrelated clients test is the most common path for consultants with a diversified client base: services to two or more unrelated clients, each generating at least 10% of your PSI, obtained through making offers to the public. One major client (such as a former employer) plus one token side client is not sufficient.
The ATO's PCG 2025/5 includes a transition period through to 30 June 2027, signalling that enforcement is tightening. The message: restructure now, not later.
Income mainly rewarding personal efforts or skills is PSI. Without passing a PSB test, income is attributed to the individual regardless of entity structure, and income splitting is ineffective.(ITAA 1997 Part 2-42 (Divisions 84-87); ATO guidance ATO Personal Services Income guidance, PCG 2025/5)
How do home office deductions work for consultants working from home?
The fixed rate method allows 70 cents per hour worked from home. This covers electricity, gas, phone, internet, stationery, and computer consumables. You must keep a record of all hours worked from home for the full year (a diary, calendar, or time-tracking app). A representative four-week period is acceptable if your pattern is consistent, but estimates without records are not accepted. You need at least one invoice or receipt for each cost category covered by the fixed rate.
Decline in value of home office equipment (desks, chairs, monitors, printers) can be claimed separately on top of the fixed rate.
The actual cost method is the alternative: claim the work-related portion of actual running costs using floor area, time, or usage-based apportionment. This requires more detailed records (bills, receipts, usage logs) but can yield a larger deduction for consultants with a dedicated office and high energy or internet costs.
Occupancy expenses (rent, mortgage interest, council rates, property insurance) are only deductible if the home office meets the ATO's strict place-of-business criteria: clearly separate from the home, used exclusively or almost exclusively for work, unsuitable for domestic use, and regularly used for client meetings. A spare room that doubles as a guest bedroom does not qualify. Claiming occupancy can reduce your CGT main residence exemption. If PSI rules apply, occupancy expenses are further restricted.
Home office running costs are claimable via the fixed rate method (70c/hour) or actual cost method. Occupancy expenses require a dedicated place of business and trigger CGT implications.(ITAA 1997 s 8-1 (general deduction) and Division 118 (main residence exemption); ATO guidance ATO working from home deduction guidance)
What travel expenses can consultants claim?
Travel directly related to earning consulting or coaching income is deductible: flights to client sites, taxis and rideshare to meetings, accommodation and meals when travelling overnight for work, and conference or seminar registration fees for events directly related to your current consulting practice.
The traps are in the detail. Home to a regular workplace (including a single client office you attend daily) is generally non-deductible commuting. Home to a client site for a genuine business visit (where you do not have a regular pattern of attending that site daily) can be deductible. Partly private trips (a holiday tacked onto a conference) must be apportioned: only the business days and directly work-related costs qualify.
Vehicle expenses use either cents-per-km (88c/km, max 5,000 km, capping the deduction at $4,250) or the logbook method (actual costs multiplied by business-use percentage from a 12-week representative logbook). For consultants who primarily work from home and visit clients occasionally, cents-per-km is often simpler and sufficient. For those travelling daily between multiple client sites, the logbook method usually gives a larger deduction.
Travel directly related to earning income is deductible. Home-to-regular-workplace travel is generally non-deductible. Partly private trips must be apportioned to the business portion only.(ITAA 1997 s 8-1 (general deduction) and Division 28 (car expenses); ATO guidance ATO vehicle and travel expenses guide)
Is client entertainment deductible?
No, in most cases. The ATO draws a firm line between entertainment (non-deductible, no GST credits) and genuine business expenses. Restaurant meals with clients, event tickets, social functions, and any food or drink with a social element are treated as entertainment and are not deductible for sole traders or partnerships.
The common trap: assuming a business lunch is deductible because you discussed work. The ATO usually disagrees. The purpose of the meal does not override its character as entertainment.
What is deductible: meals and accommodation while travelling overnight for work (these are sustenance, not entertainment). Conference catering included in the registration fee (this is part of a training expense). Morning tea or light refreshments provided to your own employees in the office (minor and infrequent, not applicable to most sole traders).
For consultants trying to claim client meals, the safe approach is to treat them as a non-deductible cost of doing business and focus deduction effort on genuinely claimable categories like professional development, insurance, and home office costs.
Client entertainment (meals, event tickets, social functions) is generally not deductible and does not generate GST credits. Travel meals while overnight for work are deductible as sustenance.(ITAA 1997 Division 32 (entertainment); ATO guidance ATO entertainment expenses guidance)
Contractor vs employee: the written contract is decisive
The High Court reset the contractor/employee test in 2022. Where there is a comprehensive written contract that is not a sham, classification turns principally on the rights and obligations established by that contract — not on the day-to-day conduct of the parties. Get the engagement contract right at the start; do not rely on post-contract behaviour to recharacterise the relationship later.
This matters because misclassification exposes the engager to PAYG withholding shortfalls, super guarantee charge (with the contractor-deemed-employee extension under SGAA 1992 s 12(3)), and payroll tax. It also affects whether the worker can deduct business expenses and whether PSI rules engage.
Contractor vs employee classification is determined principally by the rights and obligations in the written contract, not by post-contract conduct.(CFMMEU v Personnel Contracting Pty Ltd [2022] HCA 1; ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2 (companion case); ATO guidance TR 2023/4 (employee vs independent contractor))
Home running costs: PCG 2023/1 fixed-rate vs actual cost
Most workers in this trade do some admin from home — quoting, invoicing, scheduling, BAS prep. From 1 July 2024 the ATO fixed-rate method is 70c per hour worked from home and covers electricity, gas, internet, mobile, stationery and computer consumables. You cannot also claim those bills separately under the fixed rate. You can still separately depreciate office furniture and equipment used at home.
FY 2024-25 and FY 2025-26 rate: 70c/hr. FY 2022-23 and FY 2023-24 rate: 67c/hr. The fixed rate requires a contemporaneous record of actual hours worked from home — a timesheet, calendar or app log. Estimates and four-week samples are no longer accepted for the fixed rate method (they remain valid for the actual cost method).
The fixed-rate method for home office running costs is 70c per hour from 1 July 2024 and requires a record of actual hours worked from home.(PCG 2023/1 (as amended); ITAA 1997 s 8-1; ATO guidance TR 93/30; TR 2024/3)
Fixed rate method (70c/hour worked from home) or actual cost method. Equipment depreciation claimable separately on top of the fixed rate
Professional indemnity insurance
PI insurance covering claims arising from advice or services provided to clients
Deductible as ordinary business expense. Critical for consultants whose advice carries financial or operational consequences for clients
Other insurance
Public liability, cyber insurance, income protection (periodic payment policies only)
Deductible as business operating expense. Lump-sum benefit policies (trauma, life) are generally not deductible
Professional development
Advanced coaching certifications, specialist consulting frameworks, industry conferences, CPD courses in current field
Deductible if maintaining or improving skills currently used to earn income. Retraining into an entirely new profession is not deductible
Professional memberships and subscriptions
Industry association fees, journal subscriptions, professional body memberships relevant to current practice
Deductible as professional membership fees
Software and tools
CRM, project management platforms, proposal and e-signature tools, video conferencing, accounting software, scheduling tools
Subscriptions immediately deductible as operational expenses in the year incurred
Marketing
Website hosting, domain names, search ads, social media campaigns, business cards, brochures, networking event entry
Deductible as business promotion. Client entertainment (meals with a social element) is not deductible
Travel
Flights to client sites, accommodation and meals for overnight work travel, taxis and rideshare to client meetings
Fully deductible when directly related to earning income. Partly private trips apportioned. Home-to-regular-workplace is non-deductible commuting
Accounting and legal
Tax return preparation, BAS lodgement, contract review, business structuring advice
Deductible as business operating expense
Vehicle and travel costs
Most consultants and coaches who work primarily from home and visit clients occasionally should use the cents-per-km method (88c/km, max 5,000 km, capping the deduction at $4,250). It requires only a reasonable estimate of business kilometres driven, no logbook. For consultants who travel daily between multiple client sites or spend significant time on the road, the logbook method gives a larger deduction: keep a 12-week representative logbook to establish business-use percentage, then apply it to all running costs for the year. The logbook is valid for five years unless your work pattern changes. Home-to-a-single-client-office attended daily is treated as commuting and is not deductible under either method.
Capital allowances and equipment
The instant asset write-off for small business entities (turnover under $10 million) is $20,000 per asset for 2025-26. A $2,800 laptop, a $1,200 monitor, a $700 ergonomic chair, and a $350 printer can each be written off in full in the year of purchase. Items costing $300 or less with more than 50% business use can be immediately deducted regardless of SBE status. For most consultants, equipment costs are modest compared to trade-based businesses, so the instant write-off comfortably covers all typical purchases. Software subscriptions (CRM, accounting, project management) are revenue expenses deducted immediately, not capital assets.
Common ATO audit triggers for Consultants and Freelancers
PSI income split to family members through a Pty Ltd or trust without passing a PSB test
Client entertainment claimed as a business deduction (the ATO treats meals and social events as non-deductible entertainment)
Home office claims using the fixed rate method without a contemporaneous record of hours worked from home
Travel claims mixing business and private purposes without clear apportionment records
Large professional development claims for courses unrelated to the consultant's current income-earning activity
Repeated business losses claimed against other income without meeting non-commercial loss tests (Division 35)
Frequently asked questions
Can I deduct the cost of a business lunch with a client?+
No, in most cases. The ATO treats restaurant meals, coffee catch-ups, and social events with clients as entertainment, which is not deductible and does not generate GST credits. The purpose of the meal (discussing a project, pitching a proposal) does not override its character as entertainment. Meals while travelling overnight for work are deductible as sustenance, but a local lunch with a client is not.
What happens if I only have one major client?+
If 80% or more of your PSI comes from one client (including associates), you cannot self-assess any PSB test other than the results test. If you fail the results test, you must apply to the ATO for a PSB determination. Without that determination, PSI rules apply: income is attributed to you as an individual, income splitting is ineffective, and certain business-structure deductions are denied. Diversifying to genuinely unrelated clients (each generating at least 10% of your income) is the most reliable path to satisfying the unrelated clients test.
Is my coaching certification course tax deductible?+
It depends on whether you are already earning income as a coach. A course that maintains or improves skills you currently use to earn assessable income (for example, an advanced coaching certification when you already operate as a paid coach) is deductible. A course that enables you to enter coaching as a new profession (for example, you are currently an accountant paying for an initial coaching qualification) is not deductible because it relates to a new income-earning activity, not an existing one.
Do I need to charge GST on coaching sessions with overseas clients?+
Coaching and consulting services supplied to clients outside Australia can be GST-free if the recipient is outside Australia when the service is provided and the effective use or enjoyment of the service occurs outside Australia. A strategy engagement delivered remotely to a non-resident company whose staff are overseas qualifies. If the overseas client is physically in Australia during the coaching sessions, or if the benefit of the advice is effectively enjoyed in Australia, GST at 10% may still apply.