Sole Trader Tax in Australia: How Much Will You Actually Pay?
There is no special sole trader tax rate in Australia: your profit is taxed at personal marginal rates. Here is how it works, plus GST, deductions and a tax buffer.
By Timothy Hirou GaschereauPublished 12 min read
Here is the myth to kill straight away: there is no special sole trader tax rate in Australia. No flat rate, no small-business discount, no separate tax return. Your business profit is simply added to your personal income and taxed at the same individual marginal rates that apply to every Australian resident.
That is actually good news for most people starting out: the system is simpler than you think, and the tax-free threshold still applies to you. The tricky part is knowing what to set aside, what you can claim, and when GST becomes your problem. This guide walks through all of it, with real numbers. It is general information only, not tax advice.
🎯 The essential: No special rate: you pay individual marginal rates on your net business profit (Stage 3: nil to $18,200, then 16%, 30%, 37%, 45%), plus 2% Medicare levy. Register for GST at $75,000 turnover. Claim the business-use portion of genuine expenses (drawings are NOT deductible). Once profitable, expect PAYG instalments. Rule of thumb: set aside 25% to 30% of income for tax, in a separate account.
How sole traders are taxed
A sole trader is not a separate legal entity: you and your business are one and the same to the ATO. You add up your business income, subtract your allowable deductions, and the resulting net profit is added to any other income you have (a part-time job, rental income). That combined total is your taxable income, taxed at individual marginal rates. You report it in the business section of your individual tax return, using your personal Tax File Number. You do need an Australian Business Number (ABN), which is free to apply for, to invoice clients and register for GST.
The rates that apply: threshold and Stage 3 brackets
The Stage 3 rates took effect from 1 July 2024. These are the current resident individual rates, and the tax-free threshold applies to your total income, not just business income:
| Taxable income | Tax on this income |
|---|---|
| $0 to $18,200 | Nil (tax-free threshold) |
| $18,201 to $45,000 | 16c per $1 over $18,200 |
| $45,001 to $135,000 | $4,288 plus 30c per $1 over $45,000 |
| $135,001 to $190,000 | $31,288 plus 37c per $1 over $135,000 |
| Over $190,000 | $51,638 plus 45c per $1 over $190,000 |
Worked example. Alex is a freelance designer with an $80,000 net profit and no other income. The first $18,200 is tax-free; $26,800 at 16% is $4,288; $35,000 at 30% is $10,500. That is $14,788 income tax, plus $1,600 Medicare levy, for $16,388 total, an effective rate of about 20.5%.
GST: the $75,000 question
GST is separate from income tax, but it is the other big obligation as you grow. You must register for GST once your annual turnover reaches $75,000 (or you expect it to), and you have 21 days from crossing the threshold. Once registered you charge 10% GST on top of your prices, lodge a Business Activity Statement (BAS), and claim GST credits on business purchases. Under $75,000 it is optional, but can be worth it if you have significant GST-inclusive expenses.
The GST you collect is NOT your money: it belongs to the ATO. Move it into a separate account the moment it lands. Treating GST as income is one of the most common cash-flow traps for new sole traders.
Deductions: what a sole trader can claim
This is where sole traders genuinely cut their tax bill. You can claim any expense incurred in earning your business income, as long as you keep records and claim only the business-use portion:
- Tools and equipment; home office (business-use percentage); phone and internet (business-use portion)
- Business use of your car (logbook or cents-per-kilometre method)
- Software subscriptions, marketing, business insurance, accounting fees
- Professional development directly related to your current work
Keep receipts, invoices and logbooks: the ATO can ask for them up to five years after lodgement. And one thing you absolutely cannot claim: drawings, the money you move from the business account to pay your rent or groceries. Drawings are not a salary and not a deduction. Your profit is taxed no matter how much of it you withdraw. For the home-office side, see our work-from-home deductions guide.
PAYG instalments: pre-paying your tax
Once your business is profitable, the ATO will likely put you on PAYG instalments, usually once your return shows instalment income of $4,000 or more and tax payable of $1,000 or more. Instead of one big bill at year end, you pre-pay your estimated tax in quarterly instalments, each credited against your final liability. Pay too much and you get a refund; too little and you top up. Honestly, it is a good thing: it spreads the pain and stops you spending money that was always destined for the ATO.
Super and the tax buffer
There is no compulsory super for yourself as a sole trader: you are not an employee, so no one is paying the 12% super guarantee on your behalf. But you can, and generally should, make personal super contributions and claim them as a concessional (tax-deductible) deduction, up to the $30,000 concessional cap. The catch: you must lodge a “Notice of intent to claim a deduction” with your super fund before you lodge your tax return, or you lose the deduction. More detail in our guide to adding to super and the concessional cap.
The tax buffer: as a rough guide, set aside 25% to 30% of your income as you earn it, in a separate account labelled “Tax”. On $80,000 the effective rate was ~20.5%, but a 25% to 30% buffer covers PAYG instalments, the Medicare levy and any surprise income. Add your GST collections if you are registered.
Sole trader vs company: a brief comparison
At some point you might wonder whether a company structure saves tax. A company is a separate legal entity that lodges its own return and pays a flat rate (25% for base rate entities, otherwise 30%), with its own ASIC obligations.
| Feature | Sole trader | Company |
|---|---|---|
| Legal status | You and the business are one | Separate legal entity |
| Tax rate | Individual marginal rates (up to 45%) | 25% or 30% flat |
| Admin and cost | Low: one return, no ASIC fees | Higher: separate return, ASIC fees, more accounting |
| Liability | Unlimited personal liability | Limited liability (generally) |
| Who it suits | Freelancers, contractors, early stage | Higher earners, liability protection, investors |
A company can make sense when your income is consistently high enough that the flat rate beats your marginal rate, or when liability protection matters. But it costs more and adds complexity, so talk to a registered tax agent before switching: the savings need to outweigh the extra admin, and the right answer depends on your numbers.
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❓ Frequently asked questions
How much tax does a sole trader pay in Australia?
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It depends on your total taxable income. There is no flat rate: you pay the same individual marginal rates as any resident. On $80,000 net profit with no other income, the income tax is about $14,788 plus $1,600 Medicare levy, an effective rate around 20.5% for 2024-25. The more you earn, the higher your marginal rate, up to 45% over $190,000.
Do sole traders get the tax-free threshold?
+
Yes. The tax-free threshold of $18,200 applies to your total income, which includes your business profit. If you also have a PAYG job, both sources count toward that threshold, so you claim it once across all your income.
When do I have to register for GST?
+
You must register for GST when your annual GST turnover reaches $75,000, or when you expect it to. You have 21 days from crossing the threshold to register. Below $75,000 it is optional, though it can be worth it if you have significant business expenses with GST on them.
What can I claim as a sole trader?
+
Any expense genuinely incurred in running your business: tools and equipment, home office (business-use portion), phone and internet (business-use portion), car expenses, software, marketing, insurance, accounting fees, and relevant professional development. Claim only the business-use percentage, and keep records for every claim.
Do I have to pay myself super as a sole trader?
+
No, there is no legal obligation. But you can make personal super contributions and, if you meet the criteria and lodge a 'Notice of intent to claim a deduction' with your fund before lodging your tax return, claim them as a concessional deduction up to the $30,000 cap. It is one of the best tax-planning tools for the self-employed.
Sole trader or company: which is better for tax?
+
It depends on your income and circumstances. A company pays a flat 25% or 30% rate, which can beat your personal marginal rate at higher incomes, but comes with more admin, ASIC fees and complexity. For most freelancers and contractors starting out, sole trader is simpler and fine. Get advice from a registered tax agent before changing structure.
Keep reading
📚 Recommended reading
The Barefoot Investor
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The Barefoot Investor
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Making Money Made Simple
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On Your Own Two Feet
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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
This article is general information only, not tax advice. Tax rates, thresholds, the GST turnover limit and super caps are set by the ATO and can change. Check the ATO or business.gov.au, and consider a registered tax agent for your specific situation.
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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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