Tax & GST

How Much Tax Does a Sole Trader Pay in Australia? 2026 Guide

Sole traders pay income tax at individual marginal rates — the same rates as employees. But unlike employees, you're responsible for calculating and paying your own tax. Here's exactly how it works in 2026.

Quick Answer

A sole trader earning $80,000 net profit pays approximately $18,067 in income tax plus $1,600 Medicare levy — about 25% effective tax rate. Tax is paid on net profit after deductions, not gross revenue.

Australian income tax rates 2025–26

Taxable Income	Tax Rate	Tax on this bracket
$0 – $18,200	0%	Nil
$18,201 – $45,000	19%	19c per $1 over $18,200
$45,001 – $120,000	32.5%	$5,092 + 32.5c per $1 over $45,000
$120,001 – $180,000	37%	$29,467 + 37c per $1 over $120,000
$180,001+	45%	$51,667 + 45c per $1 over $180,000

Plus 2% Medicare Levy on most incomes. Low Income Tax Offset (LITO) applies for incomes under $66,667.

Tax examples for common sole trader incomes

Net Profit	Income Tax	Medicare Levy	Total Tax	Effective Rate
$50,000	$6,717	$1,000	$7,717	15.4%
$75,000	$14,842	$1,500	$16,342	21.8%
$100,000	$22,967	$2,000	$24,967	24.9%
$150,000	$43,567	$3,000	$46,567	31.0%

Estimates only. Actual tax depends on deductions, offsets, and your specific circumstances. Always consult a registered tax agent.

How sole traders pay tax

Unlike employees who have tax withheld from every pay, sole traders pay tax in two ways:

Annual tax return: Lodge by 31 October each year (or later if using a tax agent). This is where you declare your business income and claim deductions.
PAYG instalments: Once your tax bill exceeds a threshold, the ATO puts you on quarterly prepayments. These appear on your BAS and spread your tax burden across the year.

How to reduce your sole trader tax

Claim all allowable deductions — home office, vehicle, equipment, software, insurance, professional memberships
Contribute to super — personal super contributions are deductible up to $30,000/year
Small Business Income Tax Offset — sole traders may be eligible for up to $1,000 offset
Prepay deductible expenses before 30 June — pay next year's subscriptions, insurance, or rent in advance
Defer income — if possible, delay receiving some income until after 30 June

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Frequently asked questions

Do sole traders pay more tax than employees in Australia?

Sole traders pay the same income tax rates as employees — the individual marginal tax rates. However, sole traders can also claim business deductions that employees cannot, which can reduce their taxable income significantly.

Do sole traders pay tax on every dollar they earn?

No. Sole traders pay tax on their net profit (revenue minus allowable deductions), not gross revenue. The tax-free threshold ($18,200) also means the first $18,200 of income is tax-free.

What are PAYG instalments for sole traders?

PAYG (Pay As You Go) instalments are quarterly income tax prepayments the ATO requires once your tax bill exceeds a certain threshold. They're included in your BAS and ensure you don't face a large tax debt at year end. Your first year as a sole trader you usually pay nothing during the year, then get a tax bill — after that, the ATO puts you on quarterly instalments.

How can sole traders reduce their tax in Australia?

Legal ways to reduce sole trader tax include: claiming all allowable deductions (home office, vehicle, equipment, software), making personal superannuation contributions (deductible up to the concessional cap), prepaying deductible expenses before 30 June, and claiming the small business income tax offset.