Your sole trader tax obligations start with one rule: business profit goes in your own individual tax return, under your own tax file number, and is taxed at your personal rates. There is no separate business return. Depending on your turnover and set-up, you may also need to register for GST, pay PAYG instalments, withhold tax from employees’ wages and keep records for 5 years.
It sounds simple until the money arrives in lumps. GST you collect isn’t yours to spend, and the income tax on a good quarter often isn’t due until months later, after the cash has gone.
Below we cover each obligation, the 2025-26 tax rates, when GST and PAYG instalments kick in, a worked example of how much to set aside, and the mistakes we see most often.
Key takeaways
- Sole traders report business income and expenses in the business items section of their individual return. There’s no separate business tax return.
- Business profit is added to wages and other income, then taxed at the 2025-26 resident rates plus the 2% Medicare levy.
- GST registration is compulsory once GST turnover reaches $75,000. Taxi, limousine and ride-sourcing drivers must register whatever their turnover.
- You’re automatically entered into PAYG instalments when instalment income is $4,000 or more, tax payable is $1,000 or more and notional tax is $500 or more.
- Keep most business records for 5 years.
What are the tax obligations of a sole trader at a glance?
| Obligation | When it applies | How it is reported or paid |
|---|---|---|
| Income tax | Every year you have income to report | Business items in your individual tax return |
| GST | GST turnover of $75,000 or more, taxi or ride-sourcing work, or claiming fuel tax credits | Business activity statement (BAS) |
| PAYG instalments | The ATO enters you automatically, or you opt in | Activity statement or instalment notice |
| PAYG withholding | You employ workers | Withheld from wages and reported on your activity statement |
| Super guarantee | You have eligible employees | 12% for 2025-26. Not payable for yourself |
| Record keeping | From your first sale or expense | Keep most records for 5 years |
Do sole traders lodge a separate business tax return?
No. According to the ATO’s key tax obligations for business structures, a sole trader uses their individual tax file number and reports all their income in their individual tax return, using the business items section to show business income and expenses. You also use your ABN for all your business activities.
You pay tax on all your income, including business profit, at your individual rates. There’s no company tax rate and no separate tax-free threshold for the business.
If you lodge yourself, the 2025-26 return was due by 31 October 2026. Registered tax agents have their own lodgment schedules, but only if you engaged them before 31 October. Our guide to the tax return deadline in Australia explains how the dates work.
Watch out
If you hadn’t lodged your 2025-26 return or engaged a registered tax agent by 31 October 2026, the return is now overdue. Lodge as soon as you can rather than waiting for a reminder letter.
How is tax worked out on sole trader profit in 2025-26?
Start with business income, take off eligible deductions, then add the result to any other income such as wages, interest or rent. Tax is calculated on the total using the ATO’s resident tax rates.
| 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 don’t include the Medicare levy of 2%. They apply to Australian residents for tax purposes who were entitled to the full tax-free threshold. If your residency is unclear, check it before relying on this table.
Profit is added to your other income
Here’s a simple example of how ABN profit stacks on top of other income:
- Wages: $45,000
- Net business profit: $25,000
- Bank interest: $1,000
- Net rental income: $9,000
- Taxable income: $80,000 ($45,000 + $25,000 + $1,000 + $9,000)
The business doesn’t get a fresh $18,200 tax-free threshold. Because the wages already used it up, every extra dollar of business profit here is taxed at 30c plus the Medicare levy.
A deduction reduces your taxable income, not your tax bill dollar for dollar. Our tax deductions guide covers what you can claim, and the tax refund calculator gives a quick estimate.
When does a sole trader need to register for GST?
The ATO’s GST registration rules say you must register when your GST turnover (gross business income, minus GST) reaches $75,000 or more. That’s tested two ways:
- Current GST turnover: this month plus the previous 11 months.
- Projected GST turnover: this month plus the next 11 months.
You must also register if you provide taxi, limousine or ride-sourcing services, regardless of turnover, or if you want to claim fuel tax credits.
The test is turnover, not profit. A tradie who spends most of each invoice on materials and subcontractors can keep a thin margin and still cross the threshold. If you pay contractors in building, cleaning, courier, IT or security work, see our guide to the TPAR.
Once registered, you generally include GST of 10% in the price of taxable sales, claim GST credits on business purchases, and report both on your BAS. Our BAS and GST service can take this off your plate.
Should you register for GST voluntarily?
You can register below $75,000. It can make sense if most customers are GST-registered businesses that can claim the credit back. If you sell mainly to households, adding 10% to your price, or absorbing it, needs thinking through first, along with the extra BAS work.
When do PAYG instalments start for a sole trader?
PAYG instalments are prepayments of the income tax on your business and investment income. The ATO’s PAYG instalment rules say an individual, including a sole trader, is automatically entered when all three of these apply:
- instalment income from your latest tax return of $4,000 or more
- tax payable on your latest notice of assessment of $1,000 or more
- estimated (notional) tax of $500 or more.
You can also enter voluntarily. Instalments aren’t an extra tax. They’re credited against your bill when your return is assessed, which you’ll see on your notice of assessment. Payment dates are on your activity statement or instalment notice, and our tax due dates guide covers the key dates.
If your income drops, you can vary your instalments. Base the new figure on a written estimate of the year’s profit, not on how tight cash feels this month, or you can end up with a bigger bill at assessment time.
How much tax should a sole trader set aside? A worked example
The facts
Priya is a hypothetical carpenter in Cranbourne. In 2025-26 she has taxable business profit of $80,000 and no other income. She’s an Australian resident, pays the full Medicare levy and has no tax offsets. Her profit comes in unevenly: $35,000 in each of two busy quarters and $5,000 in each of two quiet ones.
| Step | Calculation | Amount |
|---|---|---|
| Income tax | $4,288 + 30% × ($80,000 − $45,000) = $4,288 + $10,500 | $14,788 |
| Medicare levy | 2% × $80,000 | $1,600 |
| Total to set aside | $14,788 + $1,600 | $16,388 |
| Share of profit | $16,388 ÷ $80,000 | About 20.5% |
Option 1: a flat amount each quarter
Priya could transfer $16,388 ÷ 4 = $4,097 to a tax account every quarter. That’s easy to automate, but in her two quiet quarters she only earns $5,000 profit each, so most of that quarter’s profit goes to the tax account and she may struggle to cover living costs.
Option 2: a percentage of each quarter’s profit
Instead, Priya sets aside 20.5% of whatever profit each quarter produces:
- Busy quarters: 20.5% × $35,000 = $7,175 each
- Quiet quarters: 20.5% × $5,000 = $1,025 each
- Total: $7,175 + $7,175 + $1,025 + $1,025 = $16,400
The $12 over her actual bill of $16,388 comes from rounding the rate up, which gives a small buffer. Option 2 matches the reserve to the cash coming in, which usually suits uneven trades better. Either way, any PAYG instalments she pays come out of this reserve, not on top of it.
This is an illustration only. If you also have wages, rent or other income, your rate will be different.
Tip
If you’re GST-registered, keep three separate pots: GST collected (it belongs to the ATO), an income tax and Medicare reserve, and what’s left for you to spend. Only draw from the third.
What records does a sole trader need to keep?
Keep all records about starting, running, changing and closing your business that relate to your tax and super. The ATO’s record-keeping rules say most records must be kept for 5 years, and some for longer.
A receipt shows what you paid. It doesn’t show how much was for business. For mixed-use costs you need both:
- Phone and internet: bills plus a usage record showing the business share.
- Vehicle: the records your chosen claim method requires, such as a logbook.
- Working from home: a record of the hours worked and the running costs you claim.
- Sales: invoices, platform and payout statements, refunds and fees that reconcile to your bank account.
What changes if a sole trader employs staff?
You can employ workers, but you can’t employ yourself. Money you take out of the business is a drawing, not a wage, and it isn’t deductible.
When you hire, you take on employer obligations: withholding tax from wages under PAYG withholding, reporting it on your activity statement, and paying super guarantee. The super guarantee rate is 12% for 2025-26. You don’t have to pay super guarantee for yourself, though you can make personal contributions and may be able to claim a deduction after notifying your fund.
Payroll tax is a separate state tax with its own thresholds. Most small sole traders sit well under them, but check the rules in your state, for example our guide to payroll tax in Victoria. Our payroll services can handle pay runs, withholding and super for you.
What mistakes do sole traders make most often?
The ATO estimates the net small business income tax gap for 2023-24 at $36.0 billion, or 20.5% of the tax that should have been paid. Most of it comes from ordinary errors that build up across thousands of returns. The common ones:
- Watching profit instead of turnover. GST registration depends on turnover, so a low-margin business can cross $75,000 without noticing.
- Spending the GST. GST collected sits in your account but belongs to the ATO.
- Only saving in good months. Tax builds up on every dollar of profit, so put the reserve aside as each payment lands.
- Missing cash or platform sales. Reconcile gross sales, fees and refunds, not just what hit the bank.
- Claiming private use. Only the business share of a phone, car or subscription is deductible, even if a business account paid for it.
A pre-lodgement checklist
- Match bank deposits, cash records and platform statements to the sales you declare.
- For every deduction, check you have both the receipt and evidence of the business share.
- Set aside GST and income tax before drawing money for personal use.
- Note the due dates on your latest ATO notices and activity statements.
- Fix any errors in earlier returns or BAS before lodging the next one.
FAQ about sole trader tax obligations
Do sole traders pay a different tax rate?
No. A sole trader pays tax at the same individual rates as an employee. For 2025-26 the resident rates are nil up to $18,200, then 16%, 30%, 37% and 45%, plus the 2% Medicare levy.
Do I need to register for GST as a sole trader?
You must register once your GST turnover reaches $75,000 or more, based on either the current or projected 12 months. Taxi, limousine and ride-sourcing drivers must register whatever their turnover. Below $75,000 registration is optional.
Can a sole trader pay themselves a wage?
No. You cannot employ yourself as a sole trader. Money you take out of the business is a drawing, not a wage, and it is not a tax deduction. You are taxed on the business profit instead.
When do PAYG instalments start for a sole trader?
You are entered automatically when your latest return shows instalment income of $4,000 or more, your latest assessment shows tax payable of $1,000 or more, and your estimated (notional) tax is $500 or more. You can also join voluntarily.
Do sole traders have to pay super for themselves?
No. Super guarantee does not apply to your own earnings as a sole trader. You can make personal super contributions and may be able to claim a deduction for them after notifying your fund.
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Talk to a registered tax agent
Want your sole trader return, BAS or PAYG instalments checked? Speak with a registered tax agent at Nanak Accountants & Associates on 1300 626 258, or book a consultation with our team. We look after tax and accounting for sole traders across Australia.
This article is general information only and is not personal financial or tax advice. Information checked against ATO sources on 8 November 2026.
