How to Pay Yourself as a Sole Trader in Australia
As a sole trader you take drawings, not a wage. How paying yourself actually works, why you are taxed on profit, super, and setting money aside for tax.
By Timothy Hirou GaschereauPublished 10 min read
Try it yourself
Here is the thing nobody tells you when you go out on your own: there is no payslip. No employer quietly taking out your tax before the money lands, no super turning up in your fund each quarter. Just you, your ABN, and a bank account that needs managing.
As a sole trader you do not pay yourself a salary. You take drawings: you transfer money from the business account to your personal account when you need it. Simple in concept, but there are real tax and cash-flow traps if you do not understand the mechanics. Here is the full practical guide.
🎯 The essential: You and your sole trader business are the same legal entity, so you cannot pay yourself a wage through PAYG. Instead you take drawings (transfers to your personal account), which are not a tax deduction and not taxed as wages. You are taxed on the business's net profit (income minus expenses) at individual rates no matter how much you draw. No one withholds tax for you, so set aside 25 to 50% of income from day one, arrange your own super (personal contributions can be tax-deductible), and remember GST you collect belongs to the ATO, not you.
You and the business are the same entity
A sole trader is not a separate legal entity: there is no company or trust between you and the business, you are the business. That is why you cannot be both employer and employee, put yourself on a payroll, or run PAYG withholding on your own pay. Compare a company: incorporate and the company is a separate entity that can pay you a director's wage (deductible, with PAYG and super). As a sole trader none of that applies; the ATO simply taxes you on the net profit the business earns, which flows into your individual tax return. If you are weighing the two, see sole trader vs company.
What drawings are (and are not)
A drawing is just a transfer of business funds to your personal use. What it is not:
- Not a business expense, and not tax-deductible.
- Not subject to PAYG withholding: no tax is taken out when you draw.
- Not reported via Single Touch Payroll or a payment summary.
- Not superannuation-bearing: no super is calculated on drawings.
In your bookkeeping (Xero, MYOB, QuickBooks) a drawing is recorded as a reduction in owner's equity, not an expense. Miscategorise it as an expense and you understate your profit and risk under-reporting income to the ATO.
How you are actually taxed
Your business profit flows into your individual tax return and is taxed at the standard resident marginal rates (the same brackets as any employee), plus the Medicare levy. The critical point: you pay tax on profit, not on drawings. If you invoice $90,000 and have $15,000 of deductible expenses, your taxable profit is $75,000, whether you drew $30,000 or $70,000 for yourself during the year. Leaving money in the business account does not defer the tax; it is still yours. A quick way to sanity-check take-home at a given profit is our salary and tax calculator.
No PAYG withholding, so set aside tax yourself
This is the most common trap. As an employee, tax was withheld from every pay automatically. As a sole trader every dollar that lands is gross income with no tax taken out, so it is entirely on you to set money aside. Plenty of new sole traders spend everything, then face a $15,000 to $20,000 bill at year end with nothing left to pay it. Once your tax bill passes a threshold the ATO enrols you in PAYG instalments (quarterly prepayments credited against your annual bill), but do not wait for that.
| Estimated annual profit | Set aside roughly |
|---|---|
| Under $45,000 | 25 to 30% |
| $45,000 to $135,000 | 30 to 35% |
| $135,000 to $190,000 | 40 to 45% |
| Over $190,000 | 48 to 50% |
Open a separate high-interest savings account, label it "Tax and Super", and auto-transfer your percentage every time income lands. Do that and you will never scramble at tax time.
Superannuation: you are on your own
No employer pays super for you, and there is no legal requirement to contribute at all. That sounds like freedom; it is actually a trap, because the compulsory system exists precisely because most people do not save enough voluntarily. You make personal contributions to a fund of your choice, and they may be tax-deductible: contribute, lodge a Notice of Intent to Claim a Deduction with your fund, get their acknowledgement, then claim it in your return. Deductible contributions count toward the concessional cap ($30,000 for 2024-25) and are taxed at 15% inside super instead of your marginal rate. Build super into your set-aside percentage rather than treating it as optional.
GST is a separate obligation, not your income
If your turnover is $75,000 or more you must register for GST, add 10% to your prices, and remit it via your Business Activity Statement. The key point: GST you collect is not your income, it belongs to the ATO. Invoice a client $11,000 including $1,000 GST and your income is $10,000; the $1,000 is a liability you owe. Set it aside separately, because there is no "I accidentally spent it" exemption. When you lodge your BAS you can also claim GST credits on eligible business purchases. Our how to lodge a BAS guide walks through it.
Step by step: how to actually pay yourself
- Open a dedicated business bank account and keep business and personal money fully separate.
- Receive all client payments into the business account.
- Pay business expenses from it and keep every receipt.
- Work out available profit: income received, minus expenses, minus any GST collected.
- Move your tax-and-super set-aside (25 to 50%) into a separate savings account immediately.
- Transfer the remainder to your personal account as your drawing. That is your take-home.
- Record the drawing as owner's equity in your bookkeeping, not as an expense.
- Pay PAYG instalments each quarter when they fall due.
- Lodge your individual tax return (by 31 October, or later via a registered tax agent). Instalments are credited against the final bill.
The single habit that separates sole traders who feel in control from those who dread June is moving tax and super out of the business account the moment money arrives. Treat it as non-negotiable, like paying rent. If your ABN itself lapsed while you were quiet, our guide on reactivating a cancelled ABN gets you trading again, and the sole trader tax guide covers deductions.
Drawings vs a wage vs a director's pay
| Sole trader (drawings) | Employee (wage) | Company director | |
|---|---|---|---|
| Taxed on | Business net profit | Wages via PAYG | Wages via PAYG |
| PAYG withheld | No | Yes | Yes |
| Super paid for you | No (you arrange it) | Yes (employer) | Yes (company) |
| Deductible for the business | No | Yes | Yes |
| Flexibility | Draw what you need | Fixed pay cycle | Structured payroll |
Frequently asked questions
Can a sole trader pay themselves a salary?
+
No. A sole trader and the business are the same legal entity, so you cannot be both employer and employee. Instead you take drawings, which are transfers from the business account to your personal account. They are not wages and carry no PAYG withholding. To pay yourself a formal salary you would need to incorporate a company.
Are drawings tax-deductible for a sole trader?
+
No. Drawings are not a business expense. You pay tax on the business's net profit, not on what you draw, so whether you draw $20,000 or $80,000 from the business account, the taxable profit is the same.
How much should I set aside for tax as a sole trader?
+
A rough guide is 25 to 35% of income for most sole traders earning under $135,000, rising toward 48 to 50% for those over $190,000. The exact figure depends on your deductions, offsets and super contributions, so a registered tax agent can give you a precise number.
Does a sole trader have to pay super?
+
Not to yourself, no; there is no legal requirement. But it is strongly recommended. Personal contributions may be tax-deductible (within the $30,000 concessional cap for 2024-25) if you lodge a Notice of Intent to Claim with your fund, and skipping super is one of the costliest mistakes sole traders make.
What are PAYG instalments and do I have to pay them?
+
PAYG instalments are quarterly prepayments of your expected income tax bill. The ATO enrols you automatically once your tax liability passes roughly $1,000 (with instalment income of $4,000 or more). They appear in myGov or on your BAS if you are GST-registered, and are credited against your final tax bill so you avoid one big lump sum.
Do I need a separate bank account as a sole trader?
+
Legally no, but practically yes. A dedicated business account makes bookkeeping far easier, helps you track profit, and makes it simple to set aside tax and super. It also cuts the risk of the ATO querying personal expenses mixed in with business ones.
Can I switch to a company to pay myself a salary?
+
Yes. Incorporating creates a separate legal entity, and as a director you can be paid a director's wage that is deductible for the company and subject to PAYG and super. Whether it is worth it depends on your profit level and circumstances, so get advice from a registered tax agent before switching structures.
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Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
- business.gov.au, sole trader business structure
- ATO, PAYG instalments
- ATO, super for sole traders and partnerships
- ASIC Moneysmart, self-employment and tax
General information only, not financial, tax or legal advice. It does not take your circumstances into account. Tax rules and thresholds change, so verify current rates with the ATO or a registered tax agent before acting.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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