As a sole trader, you and your business are the same for tax. Your business profit is added to any other income and taxed at the individual rates, so there is no separate business tax rate. You report it in your personal tax return, claim your business deductions against it, and pay tax at your marginal rate. Here is what that means in practice for 2026-27.
What tax rate does a sole trader pay?
You pay the resident individual rates on your total taxable income. For 2026-27 that is nil up to $18,200, then 15% to $45,000, 30% to $135,000, 37% to $190,000, and 45% above that, plus the 2% Medicare levy. Because it is progressive, only the income inside each band is taxed at that band’s rate, so earning more never means your whole income jumps to a higher rate.
What can a sole trader claim?
You can claim expenses incurred in earning your business income, which directly reduces your taxable income. Common ones include:
- Home office running costs at 70 cents per hour, and a business-use share of phone and internet.
- Car expenses at 91 cents per kilometre (2026-27) up to 5,000 km, or the logbook method.
- Tools, equipment and assets (often immediately, under the instant asset write-off), software, insurance and accounting fees.
- Personal super contributions within the concessional cap, which is a useful way to save tax and build retirement savings.
GST, PAYG and setting money aside
You must register for GST once your turnover reaches $75,000 (and you then add 10% GST and lodge a BAS). The ATO may also ask you to pay PAYG instalments through the year towards your expected tax. The golden habit for sole traders is to set aside a portion of every payment for tax and GST, so nothing is a surprise at year end.
How MS Financial Services can help
We help sole traders keep clean records, claim every deduction, manage GST and PAYG, and lodge on time. See our Tax & Compliance and Accounting & Bookkeeping services, or get in touch.
Frequently Asked Questions
What tax rate do sole traders pay in Australia?
The individual resident rates on total taxable income. For 2026-27: nil to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000, and 45% above, plus the 2% Medicare levy.
Do sole traders pay GST?
Only once turnover reaches $75,000, at which point you must register, charge 10% GST and lodge a BAS. Below that, registration is optional.
What can I claim as a sole trader?
Business expenses such as home office (70c/hour), car (91c/km in 2026-27), tools and equipment, software, insurance, accounting fees and personal super contributions within the cap.
How much should I set aside for tax?
It depends on your income, but many sole traders set aside roughly 25-30% of income for tax, plus any GST collected. Your accountant can give you a figure for your situation.
Do I need an ABN?
Yes. Operating as a sole trader in business requires an Australian Business Number, which is free to apply for.