Sole trader tax in Australia: how much will you pay?

Sole trader tax is simpler than most people expect: there is no separate business tax. Your business profit is added to any other income you earn and taxed at the normal individual rates (16% to 45% for 2025–26), plus the 2% Medicare levy. On an $80,000 profit with no other income, that comes to about $15,400 once the small business income tax offset is applied.

This guide shows how the tax is worked out, what you would pay at different profit levels, and how to avoid a big bill after you lodge. If you would rather we handle it, see our sole trader tax returns service.

Key takeaways

• A sole trader is taxed as an individual. Your business profit goes on a business schedule in your own tax return.
• For 2025–26 the rates are 0%, 16%, 30%, 37% and 45%, plus the 2% Medicare levy.
• You pay tax on profit (income less deductible expenses), not on what you take out of the business.
• The small business income tax offset can cut your tax by up to $1,000 a year.
• No tax is withheld from business income, so set money aside every time you are paid.

How is a sole trader taxed in Australia?

A sole trader does not lodge a separate business return or pay company tax. You report your business income and expenses on a business schedule inside your individual tax return, under your own tax file number. The profit is added to wages, interest and other income, and the total is taxed at the individual resident rates plus the Medicare levy.

That means two people with the same total income pay the same tax, whether the money came from a job or a business. The differences are practical:

• Nobody withholds tax for you. An employer takes tax out of each pay. Your clients pay you in full, so the tax is due when you lodge (or through PAYG instalments, covered below).
• You claim business expenses. Tools, vehicle costs, insurance, software, phone and the business share of home office costs reduce your profit, and so your tax. Our deductions checklist lists the common ones by occupation.
• Nobody pays super for you. You can choose to contribute and claim a deduction for it.

What are the sole trader tax rates for 2025–26?

Sole trader tax rates are the individual resident rates. For 2025–26 (the return you lodge now), the first $18,200 is tax-free, then rates of 16%, 30%, 37% and 45% apply as income rises. The 2% Medicare levy is on top for most people.

Taxable income (2025–26)	Tax on this income
$0 – $18,200	Nil
$18,201 – $45,000	16c for each $1 over $18,200
$45,001 – $135,000	$4,288 plus 30c for each $1 over $45,000
$135,001 – $190,000	$31,288 plus 37c for each $1 over $135,000
$190,001 and over	$51,638 plus 45c for each $1 over $190,000

These rates apply to Australian residents for the full year. From 1 July 2026 (the 2026–27 year) the 16% rate falls to 15%, saving up to $268 a year.

How much tax does a sole trader pay on $50,000, $80,000 or $100,000?

As a rough guide for 2025–26, a sole trader with no other income pays about 13% of a $50,000 profit, 20% of an $80,000 profit and 23% of a $100,000 profit in income tax and Medicare levy, before the small business income tax offset. The table shows the detail.

Profit (no other income)	Income tax	Medicare levy	Total tax	Share of profit
$30,000	$1,188	$199	$1,387	4.6%
$50,000	$5,538	$1,000	$6,538	13.1%
$80,000	$14,788	$1,600	$16,388	20.5%
$100,000	$20,788	$2,000	$22,788	22.8%
$150,000	$36,838	$3,000	$39,838	26.6%
$200,000	$56,138	$4,000	$60,138	30.1%

Example figures for an Australian resident for the full 2025–26 year. Income tax is after the low income tax offset, and the Medicare levy includes the low-income reduction. They leave out the small business income tax offset (next section), the Medicare levy surcharge, HELP repayments and any other offsets. For your own numbers, try our sole trader tax estimate calculator.

Worked example: an electrician with an $80,000 profit

This is an example, not a real client. Jake is a sole trader electrician. In 2025–26 he invoices $110,000 and spends $30,000 on materials, his ute, tools, insurance and his phone. He has no other income.

1. Profit: $110,000 − $30,000 = $80,000 taxable income.
2. Income tax: $4,288 + 30% × ($80,000 − $45,000) = $14,788.
3. Small business income tax offset: 16% of the tax on his business income is $2,366, which is capped at $1,000.
4. Medicare levy: 2% × $80,000 = $1,600.
5. Total: $14,788 − $1,000 + $1,600 = $15,388, or about 19% of his profit.

If Jake has not paid anything during the year, that whole amount is due after he lodges. Because his tax bill is over $1,000, the ATO will also usually put him on PAYG instalments for the next year.

What if you have a job and a side business?

Your side business profit is added to your wages, so it is taxed at your top marginal rate. Your employer has already withheld tax on the wages, but nothing has been taken out of the business income, so expect a bill at tax time.

Example: Mia earns $70,000 in wages and makes a $15,000 profit from photography on weekends. Her taxable income is $85,000. The extra $15,000 is taxed at 30% plus the 2% Medicare levy, which adds about $4,800. Her small business income tax offset is about $460 (16% of the tax on her business share of income), so she should expect to owe roughly $4,340 when she lodges.

What is the small business income tax offset?

The small business income tax offset reduces the tax on your business profit by 16%, up to $1,000 a year per person. Sole traders with an aggregated turnover under $5 million can get it. You don't apply for it separately: the ATO works it out from the business schedule in your return, so the schedule has to be filled in correctly. A business that makes a loss gets no offset.

When do sole traders pay their tax?

In your first year the tax is paid in one amount after your return is assessed. Once you have a tax bill, the ATO usually starts PAYG instalments, where you prepay next year's tax each quarter, typically with your BAS or an activity statement. This spreads the cost and avoids a large bill at the end of the year.

• Lodgement: if you lodge yourself, your return is due by 31 October. If you are on a registered tax agent's list before then, you usually get more time.
• Payment: the date to pay is on your notice of assessment.
• Instalments: you can vary them if your income drops, but varying them too low can attract a penalty.

If you are registered for GST (required once your turnover reaches $75,000, or from your first dollar if you drive rideshare), GST is separate. It goes on your BAS, not your tax return. Our GST registration check and BAS lodgement pages explain more.

How can a sole trader pay less tax legally?

The main ways are claiming every deduction you are entitled to, keeping records that back them up, and planning before 30 June rather than after.

• Claim all your business costs. The business share of your vehicle, phone, internet and home office, tools and equipment, insurance, software, subscriptions and accounting fees.
• Keep records for five years. Receipts, invoices, bank statements and a car logbook if you use one. Read the ATO's record-keeping rules for small businesses.
• Consider personal super contributions. You can claim a deduction for contributions you make yourself, within the concessional cap, if you give your fund a notice of intent before you lodge.
• Prepay or buy before 30 June only if the expense makes sense for the business anyway.

For more, read how to avoid a big tax bill when you are self-employed.

Common mistakes

• Treating drawings as an expense. Money you transfer to yourself isn't a deduction. Tax is on profit.
• Spending the tax money. With no withholding, the first year's bill catches many new sole traders out.
• Including GST in income and expenses when you are registered for GST. Your tax return uses amounts excluding GST.
• Claiming private use. Only the business share of a car, phone or home is deductible.
• Leaving the business schedule incomplete, which can mean missing the small business income tax offset.

Get your sole trader return done properly

We prepare and lodge sole trader returns online, Australia-wide, from $979 incl. GST ($890 + GST). The price covers your business schedule, deductions and lodgement, and every return is reviewed by a Chartered Accountant before it's lodged. Rental properties and capital gains are priced separately: see full pricing.

Start your sole trader tax return or read more about our sole trader tax returns.

Sources

• ATO: Tax rates – Australian residents
• ATO: Medicare levy
• ATO: Small business income tax offset
• ATO: Pay as you go (PAYG) instalments
• ATO: Business structures – key tax obligations