What Taxes Does a Sole Trader Pay in Australia? ATO Guide 2025-26

As a sole trader in Australia, you pay income tax at individual rates on your net business profit, plus the 2% Medicare Levy. If your turnover exceeds $75,000, you must also register for GST and lodge a BAS each quarter. Most sole traders with consistent income will also pay PAYG instalments throughout the year.

Disclaimer: Australian tax rates and thresholds are updated annually. Verify current figures at ato.gov.au or with a registered tax agent before lodging your return.

Income Tax

As a sole trader, your business profit is added to any other income you have and taxed at the individual income tax rates. There is no flat business tax rate — your rate depends on your total taxable income for the financial year.

2025-26 individual tax rates (resident):

• $0 – $18,200: Nil (tax-free threshold)
• $18,201 – $45,000: 19c per $1 over $18,200
• $45,001 – $135,000: $5,092 + 30c per $1 over $45,000
• $135,001 – $190,000: $32,092 + 37c per $1 over $135,000
• $190,001+: $52,442 + 45c per $1 over $190,000

These rates apply to your net business profit (revenue minus allowable deductions) combined with any other income. Reducing your taxable profit through legitimate deductions is the most direct way to lower your tax bill.

Medicare Levy

Most residents pay a 2% Medicare Levy on their taxable income in addition to income tax. The levy funds Australia's public healthcare system. Low-income earners pay a reduced levy or none at all — check the ATO website for the current low-income thresholds.

GST

Register for GST once your annual GST turnover reaches or is expected to reach $75,000 (or $150,000 for non-profits). Once registered, you add 10% GST to your invoices and lodge a Business Activity Statement (BAS) to report and remit the net GST collected, after subtracting GST credits on your business purchases.

Voluntary registration below $75,000 is available and can be beneficial if you have significant business expenses — you can then claim GST credits on those inputs. Discuss with your tax agent whether voluntary registration makes sense for your situation.

PAYG Instalments

Once your tax liability reaches a threshold (generally $1,000 after offsets), the ATO enters you into the PAYG instalments system. You pay tax in quarterly instalments rather than one large payment at lodgement time. This prevents the shock of a large tax bill and keeps you in good standing with the ATO.

The ATO calculates your instalment amount based on prior-year income. You can vary the amount if your current year income is significantly different from the prior year — useful if your income drops or you have made additional deductions.

What Can a Sole Trader Deduct?

The ATO allows deductions for expenses incurred in earning assessable income. Key deductions include:

Motor Vehicle Expenses

Two methods are available:

• Cents per kilometre: A set rate per business kilometre (88 cents/km for 2024-25; check ato.gov.au for the updated 2025-26 rate), capped at 5,000 km per year. No odometer records required, but you must have a reasonable basis for your claim.
• Logbook method: Keep a 12-week logbook to establish your business-use percentage (no maximum km limit). Apply that percentage to actual running costs: fuel, insurance, registration, maintenance, loan interest, and decline in value. Usually yields a larger deduction for high-mileage drivers.

TaxSort's GPS mileage tracker logs every trip automatically with date, distance, and route — supporting both methods without manual record-keeping.

Home Office

Two ATO-approved methods:

• Fixed rate method: 67 cents per hour worked from home (current ATO rate; verify at ato.gov.au). Covers electricity, internet, phone, stationery, and computer consumables. You must keep a record of your work hours.
• Actual costs method: Claim the actual work-related proportion of home expenses (rent or mortgage interest, electricity, internet) based on dedicated workspace floor area. More complex, but can yield a larger deduction for those with a dedicated home office.

Phone and Internet

The work-related proportion of your phone and internet expenses is deductible. If you use your phone 70% for work, claim 70% of the annual cost. Keep records showing how you calculated the percentage — the ATO may request this in an audit.

Tools, Equipment, and Technology

Business equipment, computers, software, and tools are deductible. Assets below the instant asset write-off threshold can be deducted in full in the year of purchase — check ato.gov.au for the current threshold. Larger assets are depreciated over their effective life.

Superannuation Contributions

Voluntary concessional super contributions made to your fund are fully deductible up to the annual cap ($30,000 for 2025-26; check ato.gov.au). These contributions are taxed at only 15% inside the fund, well below most individuals' marginal tax rate. This is one of the most effective tax strategies available to sole traders. Lodge a Notice of Intent to Claim a Deduction with your super fund before lodging your tax return.

Professional Development

Training, courses, books, conferences, and memberships that directly relate to your current work are deductible. Training for a new career or profession is not deductible under self-education expense rules.

Business Insurance, Accounting, and Software

Professional indemnity insurance, public liability, accounting fees, and business software subscriptions (including TaxSort) are all deductible business expenses.

Frequently Asked Questions

Do sole traders pay company tax in Australia?

No. Sole traders pay individual income tax on their business profit at personal tax rates. Company tax (25% for base rate entities) only applies to businesses structured as companies (Pty Ltd). The sole trader structure uses personal rates, which can be lower at modest income levels but higher at income above roughly $135,000.

When does a sole trader need to register for GST?

When your GST turnover reaches or is expected to reach $75,000 in any 12-month period. Register within 21 days of reaching the threshold. Rideshare and taxi drivers must register regardless of turnover.

Can I claim my car as a sole trader?

Yes — for the business-use portion. Use the cents per km method (up to 5,000 km/year) or the logbook method for higher deductions. The car purchase itself is claimed as a capital cost through depreciation (decline in value), not as a direct expense.

How does TaxSort support Australian sole traders?

TaxSort is configured for ATO rules and myTax categories. Every receipt you scan is categorised under the correct ATO expense type. The GPS mileage tracker supports both the cents per km and logbook methods. At year end, export a complete, ATO-category breakdown — ready for myTax or your tax agent — with all deductible amounts pre-calculated. Your TaxSort subscription is itself a deductible business expense.