Running your own business as a sole trader? Then understanding how your tax works isn’t just helpful; it’s essential.
Tax rules can feel complex, especially when you’re focused on everything else it takes to keep your business moving. That’s why we’ve created this practical guide for sole trader accounting: to help you navigate sole trader tax rates in Australia for the 2024–25 financial year.
We’ll walk you through what tax rates apply, how to calculate what you owe, and which deductions you can claim to reduce your bill. Whether you’re new to business or just want a clear answer, you’ll find what you need right here — no jargon, no confusion.
How are sole traders taxed in Australia?
Unlike employees who have taxes withheld from their pay, sole traders are responsible for managing their own taxes. This means you need to stay on top of your sole trader tax obligations and pay the right amount of income tax each year.
The good news is that sole traders are taxed at the same individual income tax rates as everyone else. The amount of tax you pay depends on how much taxable income your business earns during the financial year.
As your income grows, so does the percentage of tax you pay; this is known as a progressive tax system.
To give you an idea, here are the tax rates for sole traders in the 2024-2025 financial year:
Taxable income | Tax on this income |
0 – $18,200 | Nil |
$18,201 – $45,000 | 16c for every dollar you earn over $18,200. |
$45,001 – $135,000 | $4,288 plus 30c for every dollar you earn over $45,000 |
$135,001 – $190,000 | $31,288 plus 37c for every dollar you earn over $135,000 |
$190,001 and over | $51,638 plus 45c for every dollar you earn over $190,000 |
Keep in mind that these rates don’t include the Medicare Levy of 2%, which most taxpayers need to pay on top of their income tax. If you’re a small business with an aggregated turnover less than $50 million, you may also be eligible for various tax concessions.
How to calculate your sole trader tax in Australia
Calculating your sole trader tax might seem daunting at first, but it’s a relatively straightforward process once you understand the basics. There are only 3 steps involved:
- Determine your taxable income
- Apply the appropriate tax rate
- Claim deductions and offsets
1. Determine your taxable income
The first step is determining your taxable income, which is the total income your business earns minus any allowable deductions.
Taxable Income = Total Income Your Business Earns – Any Allowable Deductions
To calculate your taxable income, start by adding up all the income your business earned during the financial year. This includes any money from
- Selling Goods or Services
- Interest
- Dividends
- Rental Income
- Royalties
- Capital Gains
- Consulting or Advisory Fees
Etc.
Once you have your total income figure, subtract any allowable deductions like business expenses, depreciation, or home-based business costs.
What’s left is your taxable income – the amount you need to pay tax on. It’s important to keep accurate records throughout the year so you can easily calculate your taxable income come tax time. Using accounting software or working with a registered tax agent can help make this process smoother.
2. Apply the appropriate tax rate
Once you know your taxable income, the next step is to apply the correct tax rate based on the latest tax brackets.
For example, if your taxable income is $60,000, you won’t pay tax on the first $18,200. Then, you’ll pay:
- 16% on income between $18,201 and $45,000, and
- 30% on income between $45,001 and $60,000.
The Australian Taxation Office (ATO) offers an income tax calculator you can use to estimate your total tax based on your earnings. Remember, this is just a guide; your final tax bill might change slightly once all deductions, offsets, and Medicare Levy are factored in when you lodge your return.
3. Claim deductions and offsets
One of the advantages of being a sole trader is that you can claim deductions for expenses related to running your business.
Common deductions include things like home office expenses, vehicle costs, tools and equipment, and professional development courses.
You may also be eligible for various tax offsets, which can help reduce your overall tax bill. For instance, the Low Income Tax Offset (LITO) is available for individuals earning up to around $66,667, with the full offset of $700 applying to those earning under $37,500.
It’s important to keep proper records of any deductions or offsets you claim in case the ATO requests evidence. Working with a tax professional can help ensure you’re claiming everything you’re entitled to and staying fully compliant while reducing your tax burden.
Understanding your ongoing tax obligations
As a sole trader, it’s your responsibility to stay on top of your tax obligations throughout the year. This includes registering for taxes, lodging your tax return on time, making pay as you go (PAYG) instalments, and keeping accurate records.
Unlike employees, sole traders manage and report their own taxes, meaning you’ll need to calculate your taxable income, apply the correct tax rates, and ensure you’ve set aside enough to meet your end-of-year liability. If your income is above a certain threshold, the ATO may also require you to make quarterly PAYG instalments as prepayments towards your final tax bill.
In addition to income tax, you may need to:
- Register for an ABN and Tax File Number (TFN).
- Register for GST if your annual turnover exceeds $75,000.
- Lodge an individual tax return by 31 October (or later if using a registered tax agent).
- Keep accurate business records such as receipts, invoices, and financial statements for at least five years.
Staying compliant not only avoids ATO penalties but also keeps your cash flow predictable. If you’re unsure about your obligations, it’s wise to work with a registered tax or BAS agent like Sleek; who can guide you through the process and ensure everything is done right the first time.
Managing your tax as a sole trader goes beyond just lodging a return, it involves meeting specific obligations throughout the year. These include registering your business correctly, understanding if you need to charge GST, planning for quarterly PAYG instalments, and keeping well-organised financial records to support your tax filings and deductions.
Registering for taxes
Before you start trading as a sole trader, you’ll need to register for an Australian Business Number (ABN) and a Tax File Number (TFN). You can do this online through the Australian Business Register website. Registering for an ABN is free and usually takes less than 15 minutes.
If your business earns more than $75,000 annually (or $150,000 for non-profit organisations), you must register for Goods and Services Tax (GST). We’ll dive deeper into GST requirements later in this article.
Lodging your sole trader tax return
Sole traders must lodge an individual tax return each year, reporting both personal and business income and claiming any eligible deductions. For the 2024–25 financial year, the deadline to lodge your return is 31 October 2024 if you’re doing it yourself. However, if you’re using a registered tax agent, you may be eligible for a later deadline, but you must engage them before 31 October to qualify.
Important Read – Key Tax Dates and Deadlines You Need to Know
When lodging your tax return for the 2024–25 financial year, you’ll need to report your total business income, list any deductions you’re claiming, and calculate your taxable income. You can submit your return online via the ATO’s myTax portal or through a registered tax agent who can assist with more complex returns.
Making quarterly tax: PAYG instalments
Depending on your business income, you may need to make quarterly pay as you go (PAYG) instalments throughout the year. These instalments are essentially prepayments of the tax you’ll owe at the end of the financial year.
The ATO will notify you if you need to start making PAYG instalments based on your previous tax returns. You can make these payments online through your myGov account or at any Australia Post outlet.
Keeping accurate records
One of the most important things you can do as a sole trader is keep accurate records of your income and expenses throughout the year. This includes things like receipts, invoices, bank statements, and any other documents related to your business.
Keeping good records will make it much easier to calculate your taxable income and claim deductions when it comes time to lodge your tax return. It will also help if the ATO ever decides to audit your business, having clear records will make the process go much smoother.
There are plenty of accounting software options available that can help automate record keeping for sole traders. Some popular choices include Xero, MYOB, and QuickBooks.
Tax deductions and concessions every sole trader should know
One of the perks of running your own business is being able to claim tax deductions for expenses related to earning your income. As a sole trader, there are plenty of deductions you may be eligible for depending on your specific circumstances.
What you can deduct as a sole trader
As a sole trader, you can maximise your tax savings with these deductible business expenses:
- Home office expenses like electricity, internet, and office furniture.
- Vehicle expenses for cars used for business purposes.
- Tools, equipment, and other assets used in your business.
- Advertising and marketing costs.
- Business insurance premiums.
- Professional development courses and subscriptions.
- Costs of engaging contractors or employees.
To claim a tax deduction, you need to have spent the money yourself and not been reimbursed. The expense must also be directly related to earning your assessable income and you need to keep a record to prove it.
Are you eligible for small business tax concessions
If your business has an aggregated turnover of less than $10 million, you may be eligible for various small business tax concessions. These concessions can help reduce your tax bill and make it easier to manage your cash flow.
Some key concessions for small businesses include:
- Simplified depreciation rules.
- Immediate deductions for startup costs.
- Simpler BAS reporting for GST.
- Accounting for GST on a cash basis.
- Annual apportionment of GST input tax credits.
It’s worth speaking to a tax professional to see which concessions your business might be eligible for.
Working from home? Here’s how to claim it
If you run your business from home, you can claim deductions for the portion of your home expenses that relate to your business. This includes things like:
- Mortgage interest or rent
- Council rates
- Land taxes
- Insurance
- Repairs and maintenance
You can calculate your home-based business deductions using either the actual cost method or the fixed rate method. The actual cost method involves keeping records of all your home expenses and calculating the percentage that relates to your business use.
The fixed rate method is a simplified calculation where you claim a flat rate of 52 cents per hour for every hour you work from home.
How can you claim your motor vehicle expenses
If you use your personal vehicle for business purposes, you can claim a tax deduction for the associated costs. There are two methods for calculating vehicle deductions:
- Cents per kilometre method: You can claim a flat rate of 88 cents per kilometre for business-related travel, up to a maximum of 5,000 km per vehicle per year.
- Logbook method: You keep a logbook of all your vehicle expenses for a continuous 12-week period. You can then claim a deduction based on the percentage of business use versus personal use.
It’s important to keep accurate records whichever method you choose, as the ATO may ask for evidence to support your claims.
Can you claim fuel tax credits as a sole trader
If you use fuel in your business, you may be eligible to claim fuel tax credits. These credits are available for fuel used in machinery, plant, equipment, heavy vehicles, and light vehicles travelling off public roads.
To claim fuel tax credits, you need to be registered for GST and keep records of your fuel purchases. You can claim the credits on your BAS.
Superannuation and fringe benefits for sole traders
As a sole trader, you’re not legally required to pay yourself superannuation. However, making personal contributions can be a good way to save for retirement and potentially reduce your tax bill.
How can you deduct superannuation obligations
If you choose to make personal superannuation contributions as a sole trader, you may be eligible to claim a tax deduction. To do so, you’ll need to notify your super fund in writing of the amount you intend to claim and obtain an official acknowledgement from them before lodging your tax return.
Keep in mind that there are annual caps on how much you can contribute to super before additional taxes apply. For the 2024–25 financial year, the concessional (pre-tax) contributions cap is $30,000. This includes employer contributions (if applicable) and any personal contributions you’re claiming as a deduction.
If your total super balance is under $500,000, you may also be able to carry forward any unused concessional cap amounts from the past five years.
Claiming superannuation contributions
If you’re eligible to claim a tax deduction for personal super contributions, you can do so by completing a Notice of Intent to Claim form and giving it to your super fund. You’ll also need to include the deduction in your tax return for that year.
It’s important to keep records of your super contributions and any acknowledgements from your fund, as the ATO may ask for evidence if they decide to audit your tax affairs.
What do sole traders need to know about fringe benefits tax
Fringe benefits tax (FBT) is a tax employers pay on certain benefits they provide to their employees or their employees’ family or other associates. Common fringe benefits include things like company cars, discounted loans, and gym memberships.
As a sole trader, you’re not an employee of your own business so you don’t have to worry about FBT. However, if you do start hiring employees down the track, it’s important to be aware of your FBT obligations.
GST, BAS, and other taxes for sole traders in Australia
When you register for GST
If your business has a GST turnover of $75,000 or more (or $150,000 for non-profit organizations), you need to register for Goods and Services Tax (GST). GST is a 10% tax added to the price of most goods and services sold in Australia.
Once you’re registered for GST, you need to include GST in the price of your goods and services and report and pay the GST to the ATO on a regular basis. You can also claim credits for any GST included in the price of goods and services you buy for your business.
How to report and pay GST properly
Most businesses report and pay GST on a quarterly basis, although you can choose to do it monthly if you prefer. You report your GST obligations on a Business Activity Statement (BAS) and lodge it with the ATO.
Your BAS will include information on your total sales, GST collected, GST credits you’re claiming, and any other relevant taxes like PAYG instalments. You can lodge your BAS online through your myGov account or through a registered tax agent.
Key Takeaway:
Understanding sole trader tax is the first step, but staying organised and proactive is what saves you money. Maximise your deductions, meet your deadlines, and don’t hesitate to get expert help if things get complex.
Conclusion
Navigating tax as a sole trader doesn’t have to be overwhelming. From understanding the latest tax brackets to calculating your income and claiming every deduction you’re entitled to, you now have the essentials to stay compliant and in control.
But you don’t have to do it all alone. Sleek’s expert accountants are here to make tax time easier, helping you maximize deductions, meet every deadline, and stay ATO-compliant year-round.
Ready to take the hassle out of your sole trader tax? Get started with Sleek today and let us handle the numbers while you focus on growing your business.
FAQs on sole trader tax rates
If you underpay your tax, the ATO may issue penalties and charge interest on the shortfall. Late or incorrect PAYG instalments, omitted income, or overclaimed deductions can trigger audits or adjustments. Keeping accurate records and using a tax agent can help avoid these risks.
Only if you’re registered for GST. In that case, you’ll need to lodge a Business Activity Statement (BAS) monthly or quarterly, reporting GST collected, GST credits, PAYG instalments, and other obligations.
If you’re earning income from freelancing, consulting, or gig platforms (like Uber or Airtasker), it’s considered business income. You may need an ABN, must declare the income, and could be subject to GST if you exceed $75,000 turnover.
Yes, eligible startup expenses like legal fees, business registration, website setup, and accounting advice can be claimed either as an immediate deduction or amortised over five years under the simplified depreciation rules.
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