Sole Trader Tax in Australia: What You Can Claim and How Much You Pay

As a sole trader in Australia you pay tax on your business profit at the same individual rates as an employee: nothing on the first $18,200, then 15%, 30%, 37% and 45% as your income climbs (2026-27 rates), plus the 2% Medicare levy. There's no separate business tax, and every legitimate business expense you claim reduces the profit that gets taxed. This guide covers both halves of the question: how much you'll actually pay at $60,000, $90,000 and $150,000 profit, and exactly what you can and can't claim.

How sole trader tax works

A sole trader isn't a separate legal entity, so the ATO doesn't tax "the business". It taxes you. Each year you lodge one individual tax return with a business schedule attached. Your business income minus your business deductions gives your net profit, and that profit is added to any other income you earned (a part-time job, interest, dividends) to arrive at your taxable income.

Three things follow from that:

• You can't pay yourself a wage. Money you take out of the business is a drawing, not a salary, and it isn't a deduction. You're taxed on the profit whether you spend it or leave it in the account.
• Your tax-free threshold applies once. If you have a job as well as your business, the $18,200 threshold covers your combined income, not each source separately. Plenty of new sole traders get caught with a bill because their employer's PAYG withholding assumed the job was their only income.
• Losses can offset other income (sometimes). If the business makes a loss, you can usually deduct it against your salary in the same year, provided you pass one of the ATO's non-commercial loss tests (for example, business income of at least $20,000). Otherwise the loss carries forward.

If you're weighing this up against running a company, the trade-off is roughly this: a company pays a flat 25% on profit, but the money is then taxed again when it comes out to you as dividends or wages. For most people earning under $150,000 or so, sole trader tax is simpler and not meaningfully higher. Our business structure guide walks through the numbers.

2026-27 tax rates for sole traders

These are the resident individual rates for the year that started 1 July 2026. The only change from last year is the second bracket dropping from 16% to 15%; it falls again to 14% from 1 July 2027.

Taxable income	Tax on this income (2026-27)
$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 and over	$51,370 plus 45c for each $1 over $190,000

On top of income tax:

• Medicare levy: 2% of taxable income. You pay none of it if your taxable income is at or below the low-income threshold ($28,011 for singles for 2025-26, the latest figure the ATO had published as at September 2026; the 2026-27 thresholds are normally confirmed after the year ends), and a reduced amount up to $35,013.
• Medicare levy surcharge: 1% to 1.5% extra if you don't hold private hospital cover and your income is above $105,000 for singles or $210,000 for families (as at September 2026). This is on top of the 2% levy, not instead of it.

And two offsets that reduce the bill:

• Small business income tax offset. If your turnover is under $5 million, the ATO knocks 16% off the tax attributable to your business income, capped at $1,000 a year. You don't apply for it; it's calculated automatically when you lodge, as long as you've filled in the net small business income field.
• Low income tax offset. Up to $700 if your taxable income is $37,500 or less, tapering to nothing at $66,667. Also automatic.

Worked examples: tax on $60,000, $90,000 and $150,000 profit

These assume you're an Australian resident, the business is your only income, you have private hospital cover (so no surcharge), and no HELP debt. "Profit" means what's left after every deduction in the second half of this guide.

	$60,000 profit	$90,000 profit	$150,000 profit
Income tax (2026-27 rates)	$8,520	$17,520	$36,570
Medicare levy (2%)	$1,200	$1,800	$3,000
Low income tax offset	-$100	$0	$0
Small business income tax offset	-$1,000	-$1,000	-$1,000
Total tax	$8,620	$18,320	$38,570
Effective rate	14.4%	20.4%	25.7%
Left in your pocket	$51,380	$71,680	$111,430

A couple of things worth noticing. The small business offset hits its $1,000 cap once your business tax passes $6,250, so from about $52,000 profit upwards everyone gets the same flat $1,000 off. And your marginal rate, the tax on the next dollar you earn, is much higher than the effective rate: between $45,001 and $135,000 every extra dollar costs you 32c (30c tax plus 2c Medicare levy). That's the number to use when you're deciding whether an extra $2,000 of equipment is worth buying before 30 June.

Without private hospital cover, the $150,000 example would fall in the surcharge's Tier 2 band ($123,001 to $164,000 for singles in 2026-27) and attract a Medicare levy surcharge of 1.25%, or $1,875, on top.

A common rule of thumb is to transfer 25% to 30% of every payment you receive into a separate tax account. For most sole traders that comfortably covers income tax and Medicare levy and leaves a buffer for GST if you're registered.

PAYG instalments: paying as you go after your first year

In your first year as a sole trader, nobody withholds tax from your invoices, so you pay the whole year's bill in one hit after you lodge. From then on, the ATO moves you onto pay as you go (PAYG) instalments so you pre-pay next year's tax quarterly.

You're entered automatically once your latest return shows both:

• instalment income (gross business and investment income, excluding GST) of $4,000 or more, and
• tax payable on your notice of assessment of $1,000 or more.

The ATO writes to you with either a fixed dollar amount per quarter (based on last year's tax) or an instalment rate you apply to your actual quarterly income. If you're registered for GST, the instalment appears on your BAS; if not, you get a separate activity statement. Instalments are credited against your final bill when you lodge, so you're not paying twice, just earlier.

If business drops off, you can vary the instalment down. Just be careful: vary too low and end up more than 15% short of your actual liability, and the ATO can charge interest on the shortfall. You can also opt in voluntarily in year one to spread the pain, which many accountants recommend.

Your other tax obligations at a glance

Obligation	What it means for a sole trader
Income tax return	Lodge by 31 October each year, or generally up to 15 May if you're on a registered tax agent's lodgement program (you must be signed up with them before 31 October)
Late lodgement	Failure to lodge penalty of one penalty unit per 28 days late, up to five units. The penalty unit is $364 from 1 July 2026, so up to $1,820
GST	Register once your turnover hits $75,000 (or is likely to in the next 12 months); then lodge a BAS, usually quarterly. See our BAS and GST guide
PAYG instalments	Quarterly pre-payments once the ATO enters you (see above)
Super	Voluntary for yourself. If you hire staff, compulsory at 12% and paid on payday from 1 July 2026
Records	Keep everything for five years from when you lodge
ABN	Free, and your identifier on invoices. No annual renewal

What you can claim: the ATO's three golden rules

Before the categories, the test the ATO applies to every single deduction:

1. The expense must be for your business, not for private use. A laptop you use for invoicing qualifies. A laptop your kids do homework on doesn't.
2. If it's mixed, claim only the business portion. Phone, car, home internet: work out a reasonable business percentage and claim that, not the lot.
3. You must have a record to prove it. No receipt, no bank record, no diary entry means no deduction if the ATO asks.

Every category below is just those three rules applied to a specific type of spending.

Deductions sole traders commonly claim

Home office

If you do some or all of your work from home, you have two methods.

Fixed rate method: 70 cents per hour (the ATO's published rate for 2024-25 and 2025-26; as at September 2026 no different rate had been announced for 2026-27, so check the ATO page before you lodge). That single rate covers electricity and gas, phone and internet, stationery and computer consumables. You can't claim any of those separately on top. You can separately claim the decline in value of your desk, chair, monitor and computer, plus repairs and cleaning of a dedicated work area. The catch is records: since 2023 you need an actual log of the hours you worked from home for the whole year (a diary, timesheet or calendar), not a representative four-week sample.

Actual cost method. You work out the real business share of each expense: floor-area percentage of your power bill, itemised phone use, the lot. More work, often a bigger claim if you have a dedicated room and high running costs.

Occupancy expenses (rent, mortgage interest, council rates, home insurance) are a different story. You can only claim a share of these if part of your home is a genuine place of business: a dedicated room, clearly identifiable as business premises, that isn't readily used for anything else. Most sole traders working from a spare bedroom don't meet that bar, and if you own the home, claiming occupancy costs can expose part of it to capital gains tax when you sell. Talk to your accountant before going down that path.

Vehicle

Two methods again, and you pick one per car per year.

Cents per kilometre: 91 cents per business kilometre, up to 5,000 km (2026-27 rate, as at September 2026). That's a maximum claim of $4,550 per car. You don't need receipts, but you do need to be able to show how you worked out your business kilometres, such as diary entries of client visits and distances.

Logbook method. Keep a logbook for a continuous 12-week period recording every trip, business and private. That gives you a business-use percentage you can apply to all your car costs (fuel, insurance, registration, servicing, interest, depreciation) for up to five years, as long as your pattern of use doesn't change significantly. Keep the receipts, or odometer readings and a reasonable estimate for fuel. If you drive more than about 5,000 business kilometres a year or run an expensive vehicle, the logbook almost always wins.

Two traps. Driving from home to your regular workplace is private travel, not business, even for a sole trader. And a passenger car's depreciation is capped at the ATO's car limit regardless of what you paid for it; if you're buying something pricey, check the current limit first.

Tools, equipment and the $20,000 instant asset write-off

The 2026-27 Budget (12 May 2026) made the $20,000 instant asset write-off permanent from 1 July 2026, and the change is now law (Treasury Laws Amendment (Tax Reform No. 2) Act 2026). For a sole trader with turnover under $10 million, that means:

• any business asset costing less than $20,000 (GST-exclusive if you're registered) is deducted in full in the year you first use it or have it installed ready for use
• the threshold applies per asset, so five items at $15,000 each are all written off immediately
• an asset costing $20,000 or more goes into the small business depreciation pool and is written off at 15% in the first year and 30% each year after

Laptops, power tools, cameras, a coffee machine for the studio, office furniture, a second-hand ute: if it's used to earn your income, the business-use portion of it is claimable. For a mixed-use asset you still write off the whole cost under the $20,000 rule, then reduce the deduction by your private-use percentage.

Phone and internet

Claim the business share of your mobile and home internet plans. The ATO expects you to have a reasonable basis: the easiest is to take one representative four-week bill, mark up business versus personal calls and data, and apply that percentage to the whole year. If you use the 70c home office fixed rate, phone and internet are already included in it and can't be claimed again.

Insurance

Public liability, professional indemnity, business contents, the business share of your car insurance, and income protection premiums (as long as the policy is held outside super) are all deductible. Life and trauma insurance premiums aren't.

Professional fees

Your accountant, tax agent, bookkeeper and BAS agent are deductible, including the cost of managing your tax affairs and any ATO interest charges (though ATO penalties themselves aren't). So are legal fees for business contracts, debt recovery and leases, though legal costs for buying a business or setting up a structure are generally capital and treated differently.

Training and self-education

Courses, workshops, conferences, books and subscriptions are deductible when they maintain or improve skills you already use in your current business, or are likely to increase your income from it. A graphic designer doing an advanced Figma course: yes. The same designer studying to become a physiotherapist: no, because it's for a new occupation, not the one earning the income now. Travel and accommodation for a work-related conference are claimable too, less any private days tacked on.

Super contributions

Nobody pays super for a sole trader, so it's up to you. The upside is that personal super contributions are tax deductible up to the concessional cap, which is $32,500 for 2026-27 (up from $30,000). A $10,000 contribution at the 32% marginal rate saves you $3,200 in tax while the money goes into a fund taxed at 15%.

Three conditions matter:

• You must lodge a notice of intent to claim a deduction with your super fund, and receive their acknowledgement, before you lodge your tax return (or before the end of the following financial year, whichever is earlier). Miss this step and the deduction is lost.
• The cap includes any employer contributions if you also have a job.
• If your total super balance was under $500,000 at the previous 30 June, you can also use up to five years of unused cap from earlier years in one go, which is handy after a big year.

Other common claims

Bank fees and merchant fees on the business account, accounting and invoicing software, website hosting and domain renewals, advertising and marketing, business name registration, industry association memberships, interest on money borrowed for the business, stock you sell, subcontractors, protective clothing and safety gear, and the business share of any rent on premises. If you're not yet registered for GST, the GST included in these costs is part of your deduction too.

What you can't claim

The mistakes that draw ATO attention are usually the same handful:

• Private and domestic expenses, and the private share of anything mixed. Groceries, childcare, gym membership, your personal phone plan if you also have a business one.
• Entertainment. Client lunches, drinks with a supplier, tickets to the footy with a customer. It doesn't matter how much business gets discussed. The narrow exception is light refreshments at a meeting on your own premises.
• Fines and penalties. Parking and speeding fines, ATO late lodgement penalties, council infringements. Even if you were on a job at the time.
• Everyday clothing. Suits, business shirts, jeans and boots aren't deductible even if you only wear them for work. Clothing is claimable only if it's protective (steel caps, hi-vis, sun protection for outdoor work), occupation-specific (a chef's checked pants), or a registered or logo-bearing uniform.
• Travel between home and your regular place of work. That's commuting. Travel between jobs, to clients or to suppliers is fine.
• Your own drawings, HELP repayments and the super you didn't pay yourself.
• The GST component of expenses if you're GST-registered. You claim that back on your BAS instead, and deduct the GST-exclusive amount on your tax return.
• Capital costs of buying a business or goodwill. These form part of your cost base for capital gains tax later, not a deduction now.

Record-keeping: what to keep and for how long

You must keep records that explain every transaction for five years from when you lodge the return they relate to (longer if a depreciating asset or dispute is involved). That means tax invoices and receipts showing the supplier, amount, date and what was bought, bank and credit card statements, your home office hours log, your car logbook or kilometre diary, notice of intent acknowledgements from your super fund, and evidence of how you worked out any business-use percentage.

Paper is fine, but a photo or PDF stored somewhere backed up is just as valid to the ATO and far less likely to fade or go missing. Snap the receipt the day you get it, and use a separate business bank account so business and private spending never have to be untangled at tax time. Most sole traders find that even the cheapest tier of accounting software pays for itself in recovered deductions and saved hours, and if the bookkeeping is falling behind, a bookkeeper or BAS agent costs less than the deductions you're probably missing.

Key takeaways

• Sole trader profit is taxed on your individual return at 0%, 15%, 30%, 37% and 45% (2026-27), plus the 2% Medicare levy. There's no separate business tax and no wage to yourself.
• On $60,000, $90,000 and $150,000 profit you'll pay roughly $8,600, $18,300 and $38,600 respectively, after the $1,000 small business income tax offset. Put 25% to 30% of every payment aside.
• After your first return, expect quarterly PAYG instalments once you've had $4,000 of business income and $1,000 of tax.
• You can claim anything spent to earn your business income, apportioned for private use, with a record to prove it. The big ones are home office (70c per hour), vehicle (91c per km up to 5,000 km, or a logbook), equipment under $20,000 written off immediately, and deductible super up to $32,500.
• You can't claim entertainment, fines, everyday clothing, commuting or the private share of anything.
• Keep every record for five years. Digital copies are fine.

Where to get help

• ATO: Income and deductions for business — the official rules for every deduction category, plus the small business income tax offset.
• ATO: Working from home expenses — current fixed rate and record requirements.
• ATO: Tax rates for Australian residents — the brackets for each income year.
• ATO app (myDeductions) — free, and lets you photograph receipts and log car trips and home office hours as you go, then upload them straight into your return.
• Our sole trader guide — everything else about running the structure, from invoicing to insurance.
• A registered tax agent — for anything involving occupancy expenses, business losses against wages, large asset purchases or super strategy, an hour of a good accountant's time is a deduction that usually pays for itself. Check they're registered on the Tax Practitioners Board register before you engage them.