As a sole trader in Australia you’re taxed as an individual on your business profit. There’s no separate business tax, but you are responsible for GST, PAYG instalments and your own super. This guide covers everything for 2026–27.
ABN and registrations
Apply for an Australian Business Number (ABN) when you start trading. You use your individual tax file number to lodge, and report business income in the business schedule of your individual return. Register for GST once turnover reaches $75,000.
How sole trader income is taxed
Your net business income (income minus deductions) is added to any other income and taxed at the individual rates: nil to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above. The Medicare levy (2%), LITO and HELP repayments apply as they do for employees.
The small business income tax offset
Sole traders with aggregated turnover under $5 million get the small business income tax offset: 16% of the tax payable on their net small business income, capped at $1,000 a year. It’s calculated automatically from your return. At around $45,000 of taxable business income it’s worth several hundred dollars, and it reaches the $1,000 cap well before $100,000.
Worked example
A graphic designer invoices $130,000 (excluding GST) and has $15,000 of deductible expenses:
| Amount | |
|---|---|
| Income (revenue) | $130,000 |
| Business expenses | $15,000 |
| Profit | $115,000 |
| Income tax (after offsets) | $24,020 |
| Medicare levy | $2,300 |
| Take-home pay | $88,680 |
| Total tax | $26,320 |
| Set aside each quarter | $6,580 |
Sole trader vs employee take-home
| Income | Sole trader keeps | Employee keeps (plus 12% super) |
|---|---|---|
| $40,000 | $37,028 | $36,505 |
| $60,000 | $51,380 | $50,380 |
| $90,000 | $71,680 | $70,680 |
| $120,000 | $92,080 | $91,080 |
| $180,000 | $129,730 | $128,730 |
The sole trader keeps slightly more on the same figure thanks to the offset, but an employee also gets 12% super, paid leave and workers’ compensation. Charge at least 20–30% more than the equivalent salary to make up for it.
GST
Once your GST turnover reaches $75,000 you must register, add 10% GST to taxable sales and lodge Business Activity Statements (BAS), usually quarterly. You can claim GST credits on business purchases. GST you collect isn’t income. Set it aside for the ATO.
PAYG instalments
Because no tax is withheld from business income, the ATO will usually enrol you in PAYG instalments after your first return with business income above the threshold. You then pay towards next year’s tax quarterly on your BAS or an instalment notice. The calculator’s “set aside each quarter” figure is a good guide.
Super for sole traders
Nobody pays super guarantee for you. You can make personal contributions and claim them as a tax deduction (up to the concessional cap) by lodging a notice of intent with your fund. They’re taxed at 15% in the fund instead of your marginal rate, often a large saving.
Deductions
- Home office (fixed rate per hour or actual costs) and a share of internet and phone
- Equipment and tools (instant asset write-off thresholds apply)
- Motor vehicle costs (cents per kilometre or logbook method)
- Professional subscriptions, insurance, accounting and software
- Travel for business, marketing and advertising
Sole trader, company or trust?
Companies pay a flat 25% rate (base rate entities) on profits, which can help once you earn more than you need to live on. But money taken out is taxed again as wages or franked dividends, and companies cost more to run. Trusts can split income among family members. An accountant can model which structure suits you.
Sole trader tax at different incomes
| Profit | Income tax after offsets | Medicare levy | Take-home | Set aside per quarter |
|---|---|---|---|---|
| $30,000 | $787 | $199 | $29,014 | $246 |
| $60,000 | $7,420 | $1,200 | $51,380 | $2,155 |
| $90,000 | $16,520 | $1,800 | $71,680 | $4,580 |
| $150,000 | $35,570 | $3,000 | $111,430 | $9,643 |
| $250,000 | $77,370 | $5,000 | $167,630 | $20,593 |
Personal services income (PSI) rules
If most of your income comes from your personal skills or effort (consulting, IT contracting, many trades) the PSI rules may limit your deductions. Unless you pass the results test (paid for a result, provide your own tools, liable for fixing defects) or another PSI test, you can’t claim things like rent for a home office or paying a family member to do admin. Most freelancers with several clients and their own equipment pass at least one test.
Contractor or employee?
Having an ABN doesn’t automatically make you a contractor. If a business controls how, when and where you work, supplies your tools and pays by the hour, you may legally be an employee entitled to super, leave and PAYG withholding. The ATO’s employee/contractor decision tool can help.
Records and BAS
Keep business records for five years. If you’re registered for GST you’ll lodge a BAS (usually quarterly) reporting GST collected, GST credits and any PAYG instalment. Cloud accounting software can prepare it from your bank feed.
First-year checklist
- Apply for an ABN and register a business name if you trade under one.
- Open a separate bank account with a sub-account for tax and GST.
- Watch your turnover for the $75,000 GST threshold.
- Set aside the quarterly amount from the calculator. PAYG instalments usually start in year two.
- Make personal super contributions and send your fund a notice of intent to claim the deduction.
- Check whether you need insurance (public liability, professional indemnity, income protection).
GST worked example
A GST-registered web designer quotes a client $11,000. That includes $1,000 of GST: the designer’s income is $10,000. In the same quarter they buy a $2,200 laptop, which includes $200 of GST they can claim as a credit. On the BAS they report $1,000 of GST collected and $200 of credits, so they pay the ATO $800. GST never appears as income or as an expense on the tax return.
Vehicle expenses
Sole traders can claim car expenses using the cents per kilometre method (a set rate per business kilometre, up to 5,000 km a year, with no receipts needed but a reasonable basis for the distance) or the logbook method (a 12-week logbook establishes the business-use percentage of actual costs, including fuel, insurance, registration, servicing and depreciation). Commuting between home and a regular place of work isn’t deductible.
Buying equipment
Small businesses can often write off the full cost of eligible assets immediately rather than depreciating them over several years, under the instant asset write-off. The threshold and dates are set by legislation and change, so check the ATO’s current figure before buying. Assets over the threshold go into a small business depreciation pool.
Frequently asked questions
How much tax does a sole trader pay in Australia?
Individual rates on profit, minus the small business offset (up to $1,000), plus the 2% Medicare levy. On $100,000 profit that’s about $21,520.
Do sole traders have to pay super?
Not for themselves, but it’s strongly recommended and often tax-deductible.
When must I register for GST?
When your GST turnover is $75,000 or more (or $150,000 for non-profits), or if you provide taxi or ride-sourcing services.
