How Sole Trader Tax Rates Work

Key Takeaways:

As a sole trader, you report all business income and deductions on your personal tax return and pay tax at individual income tax rates, not a separate business tax.
Allowable expenses like vehicle costs, home office expenses, and super contributions reduce your taxable income and can significantly lower your tax bill.
It’s important to stay on top of obligations and deadlines—like registering for an ABN (and GST if applicable) and submitting your tax return by 31 October (or later if using a tax agent).

if you run your own venture under a sole trader business structure, you’re not just the owner—you are the business. You're personally and legally responsible for every part of the operation, including, of course, taxes. So, when EOFY rolls around, it's important to understand how your business income is taxed, what deductions you can claim, and what obligations you need to meet.

Whether you’re a first-time business owner or a seasoned sole trader looking for a refresher, this article will help you navigate tax season with confidence.

The tax obligations of a sole trader

As a sole trader, you and your business are legally the same entity, which means you pay tax on your business profits in your personal tax return. You don’t pay a separate business tax, and you don’t need to lodge a company tax return—but you do need to report all your business income, claim allowable deductions, and pay tax at individual income tax rates (more on this shortly).

You may also have other obligations, such as:

Registering for an Australian Business Number (ABN)
Registering for GST if you earn over $75,000 per year [1]
Making PAYG instalments, if required [2]
Keeping detailed records for at least five years [3]

What is the tax rate for sole traders in Australia?

Sole traders pay tax using the same individual income tax rates that apply to all Australian residents [4]:

$0 – $18,200 → Nil (tax-free threshold)
$18,201 – $45,000 → 16 cents for each $1 over $18,200
$45,001 – $135,000 → $4,288 plus 30 cents for each $1 over $45,000
$135,001 – $190,000 → $31,288 plus 37 cents for each $1 over $135,000
$190,001 and over → $51,638 plus 45 cents for each $1 over $190,000

Note that these rates are for 2024-25. Make sure to check the ATO website to stay up-to-date with tax rates.

How to calculate tax for sole trader

The ATO has an income tax calculator you can use to work out your tax refund in as little as 15 minutes. But if you’re interested in the maths behind your tax as a sole trader, here’s what you need to know:

Step 1: Determine your income

Your income is all the money you made through your business, which can include sales revenue, fees for services, interest earned on business accounts, and government grants.

Step 2: Determine your allowable deductions

Once you know your income, it's time to identify the business-related expenses you can claim as tax deductions. These help reduce your taxable income, meaning you’ll pay less tax overall. Common deductions for sole traders include:

Vehicle expenses like fuel and maintenance (provided that the vehicle was used for work business purposes) [5]
Business-related travel like airfare and accommodation
If you work from home, home office expenses (restrictions apply) [6]
Office supplies
Salaries, if you employ staff
Self-education expenses [7]
Contributions to your super fund, if you make them

Step 3: Calculate your taxable income

This is simply your total income minus your allowable deductions.

Step 4: Apply the income tax rates

Calculate your tax liability based on the individual income tax rates. For example, if your taxable income is $60,000, you would owe $9,967 ($5,092, plus 32.5% of $15,000, which is the amount over $45,000).

Step 5: Add in the Medicare Levy

Along with your income tax, you need to pay your Medicare Levy which, unless you're exempt, is 2% of your taxable income [8]. With an income of $60,000, your levy would be $1,200. So, your total tax payable (before offsets or credits) = $9,967 + $1,200 = $11,167.

How to lodge your tax return as a sole trader

As a sole trader, you can submit your tax return online by yourself or through a registered tax agent. To submit it by yourself, you need to have a myGov account that's linked to the ATO. Once logged in, simply click the 'Prepare' button to access the online form. The deadline for self-lodged returns is 31 October and most refunds are issued within two weeks [9].

If you choose to get a tax agent, you'll have to provide them with the relevant paperwork so they can accurately prepare and lodge your return on your behalf. Most registered tax agents have access to a special lodgment program, allowing them to submit tax returns for their clients after the usual 31 October deadline. Your deadline will depend on your individual circumstances—but your agent can inform you of when exactly it is.

End of financial year can be a great time to level up your small business. If you want to do so without draining your cash flow, Valiant offers a wide range of financing solutions to suit your needs, including sole trader business loans. Simply get in touch with a lending expert and we'll handle your loan approval so you can focus on what matters—your business.

Keen to learn more about how to prepare for tax season as a business owner? Download our EOFY guide for all our top tips.

The content in this blog is provided for general information purposes only. It doesn't constitute financial advice and shouldn't be relied upon as such. Always consult a licensed financial advisor, accountant, or legal professional to consider your personal circumstances before making financial decisions.

References