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Learn MoreSole Trader Tax in Australia:
Complete 2026-27 Guide
As a sole trader, you pay tax at individual income tax rates. But calculating exactly how much you owe, what you can claim, and how to manage cash flow takes planning. This guide covers everything for the 2026-27 financial year.
Written by Rob, founder of AusCalc
Australian small business owner. Checked against current ATO published rates. Updated July 2026. About AusCalc
How Sole Trader Tax Works
In Australia, sole traders are taxed as individuals, not as companies. This means that all of your business profit is added to any other personal income you earned during the year (such as investment income or part-time wages) and taxed at standard ATO individual rates.
The most critical difference for sole traders compared to employees is that no tax is withheld automatically from your business earnings. You are personally responsible for setting aside enough money to pay your tax bill at the end of the year.
2026-27 Sole Trader Tax Rates
Sole traders use the same progressive tax brackets as all Australian resident tax payers. For the 2026-27 financial year, these are:
| Taxable Income | Tax Payable |
|---|---|
| $0 - $18,200 | Nil |
| $18,201 - $45,000 | 15c for each $1 over $18,200 |
| $45,001 - $135,000 | $4,020 plus 30c for each $1 over $45,000 |
| $135,001 - $190,000 | $31,020 plus 37c for each $1 over $135,000 |
| $190,001+ | $51,370 plus 45c for each $1 over $190,000 |
Note: Plus the 2% Medicare Levy. No levy below $28,011; it phases in at 10c per dollar to $35,013, then the full 2% applies.
What Can Sole Traders Claim?
Identifying all allowable tax deductions is the best way to reduce your taxable income and, therefore, your final tax bill. For 2026-27, sole traders can typically claim:
Remember: You can only claim the business portion of any expense that has a mixed private/business use.
PAYG Instalments Explained
Once your annual tax liability exceeds $1,000, the ATO will typically require you to enter the PAYG Instalment system. This is their way of ensuring you pay your tax throughout the year rather than in one hit after your tax return is lodged.
The ATO will notify you at the end of each quarter of the instalment amount you need to pay, which is calculated based on your most recently lodged tax return.
GST for Sole Traders
Registering for GST is mandatory once your gross business turnover (before expenses) reaches $75,000 per year. Below this threshold, registration is optional but can be beneficial if you want to claim GST credits on your business purchases.
Once registered, you must collect 10% GST on your sales and lodge a Business Activity Statement (BAS) monthly or quarterly.
Need to calculate GST quickly? Use our GST Calculator Australia for instant add/remove calculations.
The Set-Aside Habit: Managing Tax Cash Flow
The single biggest financial shock for new sole traders is the first tax bill. Because nothing is withheld from your invoices, the money sitting in your account is not all yours. Part of it belongs to the ATO, it just has not been collected yet.
The fix is a simple habit. Every time a client pays you, move a percentage into a separate account you never touch. For most sole traders earning between $45,000 and $135,000, setting aside 25 to 30 percent of each payment comfortably covers income tax and the Medicare levy. If you are registered for GST, put the GST component aside as well, since that money was never yours to begin with.
The right percentage depends on your income level, because Australia uses progressive brackets. A sole trader earning $50,000 has a much lower average tax rate than one earning $150,000. Run your own numbers through our sole trader tax calculator to see your actual estimated bill, then divide it by how often you get paid. That is your set-aside amount.
Where should the money sit? Anywhere you will not spend it. A separate high-interest savings account works well because the interest partly offsets the sting. Our savings calculator shows what your tax float earns while it waits.
Sole Trader vs Company: When Structure Starts to Matter
Sole traders pay tax at personal marginal rates, which reach 45 percent above $190,000. Companies pay a flat rate, 25 percent for most small businesses. That gap makes many sole traders wonder if they should incorporate.
The honest answer is that structure matters less than most people think at the start. Company profits paid out to you as wages or dividends still end up taxed at your personal rate, so a company is not a magic discount. What a company can do is let you retain profits inside the business at 25 percent, split income within legal limits, and separate business liabilities from your personal assets.
A rough rule of thumb: while your business profit stays under about $100,000 and you spend most of what you earn, the sole trader structure is usually simpler and cheaper to run. Once profits climb well past what you need to live on, or you take on real commercial risk, that is the point to pay for an hour with a registered tax agent or accountant. The personal services income (PSI) rules can also limit the benefits of a company if your income is mainly payment for your personal work, so get advice before restructuring.
Seven First Year Mistakes to Avoid
These are the mistakes that show up again and again in first-year sole trader stories. All of them are avoidable.
Super for Sole Traders: The Deduction Most People Skip
Employees get 12 percent super paid on top of wages automatically. Sole traders get nothing unless they pay themselves. It is legal to pay yourself zero super, and that is exactly why so many self-employed people reach their fifties with a fraction of the balance of their employed friends.
The upside is that voluntary contributions are one of the strongest deductions available to you. Personal concessional contributions are deductible up to the annual cap of $32,500 for 2026-27. For a sole trader in the 30 percent bracket, a $10,000 contribution can reduce this year's tax bill by around $3,000 while the money is taxed at only 15 percent going into the fund.
Two practical notes. First, you must lodge a notice of intent to claim form with your super fund and receive their acknowledgement before you lodge your tax return, otherwise the deduction is denied. Second, contributions are locked away until preservation age, so only contribute money you will not need. Model the long-term difference with our superannuation calculator or compare strategies in the salary sacrifice calculator.
How to Lodge Your Tax Return
Sole traders lodge their business income as part of their individual tax return. You do not need to lodge a separate business return.
You can lodge yourself using the ATO's myTax service by October 31st each year. If you use a registered tax agent, your deadline might be as late as May 15th the following year.
Key sections to complete include the 'Business and professional items' section, where you'll report your total business income and itemized deductions.
Worked examples at common income levels
Each of these works through the full ATO calculation for one level of net business profit, showing the tax bracket by bracket, the Medicare levy and the take-home figure - and what changes at that income, from the Low Income Tax Offset cutting out to GST registration becoming compulsory.
Related Calculators
Regulatory Notice:
Standard ATO estimates only; consult a professional before acting. For more details, see our Disclaimer.