How sole traders are taxed in Australia
As a sole trader you and your business are the same legal entity, so there's no separate "company tax". Your net business profit — your income minus your deductible expenses — is added to any other income you have and taxed at the individual income tax rates, the same brackets that apply to employees. You report it in your personal tax return under your ABN.
The big difference from a job is that no tax is withheld as you earn. An employer takes PAYG tax out of every pay; as a sole trader you receive the full amount and are responsible for the tax yourself. That's why setting money aside — or paying PAYG instalments through the year once the ATO puts you in the system — matters so much.
The 2025–26 resident tax rates
Your profit is taxed using these official ATO resident rates for 2025–26:
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil (the tax-free threshold) |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 + 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 + 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 + 45c for each $1 over $190,000 |
On top of income tax, most people also pay the 2% Medicare levy, and the calculator applies the Low Income Tax Offset automatically. Choose an earlier year to apply that year's brackets and offsets.
The $75,000 GST threshold
You must register for GST once your business turnover reaches $75,000 a year (or you expect it to). Once registered, you add 10% GST to your prices, lodge a Business Activity Statement (BAS), and can claim GST credits on your purchases. The calculator flags this when your income crosses the threshold — our GST calculator handles the maths.
Super, deductions and what to set aside
Unlike an employee, you don't receive the employer super guarantee — any super is a personal contribution you make yourself (and may be able to claim as a deduction). On deductions, you can claim expenses you incur in earning your business income; keep records, as the ATO can ask for them. A common rule of thumb is to set aside around 20–30% of your income for tax, but your effective rate above shows the figure for your situation.
Worked example: $90,000 income, $15,000 expenses
A sole trader with $90,000 income and $15,000 of expenses in 2025–26, with private hospital cover:
Net profit $75,000
That's an effective tax rate of about 19.7%. Because the $90,000 turnover is over $75,000, this sole trader also needs to be registered for GST.