Starting your own business is a big step — one filled with excitement, ambition, and more than a few questions. One of the most common concerns new entrepreneurs have is understanding how much tax they’ll have to pay. If you’ve chosen to run your business as a sole trader, you’re in the right place.
In this article, we’ll break down the sole trader tax rate in plain English — no jargon, no fluff. We’ll also walk you through everything from what taxes you’ll pay to how to calculate them, while introducing you to a trusted name in accounting: Perfect Accounting PTY Ltd.
What Is a Sole Trader?
Let’s start simple. A sole trader is someone who owns and runs their business on their own. It’s the easiest and cheapest business structure in Australia. You’re the boss, but you’re also legally responsible for everything — including debts and taxes.
If you’re not sure what a sole trader is, you can learn more here on business.gov.au.
How Are Sole Traders Taxed in Australia?
Here’s the key takeaway: sole traders are taxed as individuals, not companies. That means the income you earn from your business is added to your personal income, and you pay income tax based on that total.
There’s no separate business tax rate for sole traders.
Real-Life Example
Sarah runs a small online bakery. She made $85,000 last year. Since she’s a sole trader, she adds that $85,000 to any other personal income she earned (like interest or dividends) and pays tax just like any other individual.
2025–2026 Sole Trader Tax Rates in Australia
Here’s a quick breakdown of the individual tax rates for Australian residents for the 2025–26 financial year:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $18,200 | 0% (Tax-free threshold) |
| $18,201 – $45,000 | 19% |
| $45,001 – $120,000 | 32.5% |
| $120,001 – $180,000 | 37% |
| $180,001 and above | 45% |
✅ Remember: As a sole trader, you’ll also need to pay the Medicare Levy, which is typically 2% of your taxable income.
See the full details on ATO’s official website.
Other Taxes Sole Traders Should Know About
Besides income tax, here are other obligations:
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Goods and Services Tax (GST): If your business earns over $75,000/year, you must register for GST.
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Pay As You Go (PAYG) instalments: A way to pre-pay your income tax in instalments.
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Superannuation: While not mandatory for sole traders, it’s wise to put money into super.
Step-by-Step Guide: How to Work Out Your Sole Trader Tax
Here’s how you can estimate your sole trader tax rate and pay your dues without a headache:
Step 1: Work Out Your Total Income
Add up all your business income, plus any other sources (rental, dividends, etc.).
Step 2: Subtract Your Business Expenses
Deduct costs like tools, equipment, office supplies, website hosting — even part of your home bills if you work from home!
Learn more about deductible expenses here.
Step 3: Calculate Your Taxable Income
Total Income – Expenses = Taxable Income
Step 4: Apply the Individual Tax Rates
Use the table above to see what tax bracket you fall into.
Step 5: Account for Medicare Levy
Add 2% on top of your tax owed.
How an Accountant Can Help
Let’s be honest — tax is stressful. That’s why thousands of sole traders across Australia choose to work with professional accountants who do the heavy lifting for them.
At Perfect Accounting PTY Ltd, we specialise in helping sole traders manage their tax obligations with confidence. Whether it’s BAS statements, GST registration, deductions, or end-of-year filing — we’ve got you covered.
Why Choose Perfect Accounting?
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Expertise in Sole Trader Tax
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Clear, Honest Advice in everyday language
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Affordable Packages tailored to small business owners
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Registered Tax Agents with years of local experience
“I was overwhelmed trying to work out how much tax to pay,” says Joe, a freelance designer. “Perfect Accounting not only saved me money, but they made the process stress-free.”
Common Questions About Sole Trader Taxes
Do I Need an ABN as a Sole Trader?
Yes! You must register for an Australian Business Number (ABN) to legally operate and issue invoices.
Can I Claim Business Losses?
Yes, in many cases. Losses can be carried forward or offset against other income. However, certain rules apply. Check with a qualified tax agent.
Is It Better to Be a Company or a Sole Trader?
It depends on your income, risk, and growth plans. Sole traders are simpler and cheaper, but companies offer limited liability and other tax planning options. Read more on company vs sole trader.
Final Thoughts: Don’t Go It Alone
Figuring out your sole trader tax rate shouldn’t feel like decoding ancient runes. With the right guidance, you can take control of your finances, stay compliant with the ATO, and even save money through smart tax strategies.
Let Perfect Accounting PTY Ltd help you grow your business — minus the stress.
Get started today by booking a free consultation with our friendly team. Visit www.perfectaccounting.com.au and take the first step towards financial confidence.
Key Takeaways
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A sole trader pays tax as an individual.
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The sole trader tax rate follows the personal income tax brackets.
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You must pay income tax, Medicare levy, and potentially GST.
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Keeping records and claiming deductions is crucial.
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Working with trusted experts like Perfect Accounting PTY Ltd can simplify the process.
Want help navigating your business taxes?
Contact Perfect Accounting PTY Ltd — your go-to experts for small business success.
