How Sole Traders Pay Tax, GST and Super

How does a sole trader pay tax?

A sole trader pays income tax through their individual tax return, at personal rates, with no separate business return. According to the Australian Taxation Office (ATO), a sole trader is an individual running a business, who lodges under their individual tax file number and shows business income and expenses in the business section of that return.

Tax falls on profit, meaning business income minus deductions. The ATO says a sole trader can't employ themselves and can't claim a deduction for money taken from the business for personal use. Income from a job goes on the same return, because a sole trader pays tax on all income at their individual rate.

Employers collect tax from employee pay through pay as you go (PAYG) withholding. A sole trader's business income has no employer doing that, so the money has to be set aside by the owner and, in time, prepaid through PAYG instalments: regular prepayments, usually once every 3 months, based on business and investment income.

This guide is general information. How the rules apply to you depends on your circumstances, so take specific questions to a registered tax agent. If you are still weighing up the structure itself, see how sole trader and company structures compare.

How much tax will you pay as a sole trader? About 19% of an $80,000 profit

On $80,000 of profit in 2026-27, a sole trader's income tax and Medicare levy come to about $15,120, or 18.9% of profit, on the assumptions below.

Two other amounts change the bill. The Medicare levy is 2% of taxable income, according to the ATO. The small business income tax offset is 16% of the tax on business income, up to $1,000 a year, for a sole trader with aggregated turnover under $5 million. The ATO works out the offset from the return.

These figures are illustrative. They assume a resident for the full year, the business as the only income, no deductions beyond business expenses, and the full levy. The $60,000 row includes a $100 low income tax offset, which applies only up to $66,667 of income. The table leaves out the Medicare levy surcharge, which the ATO treats as a separate levy, along with study loan repayments and other offsets. At lower profits, the low income tax offset grows and the small business offset can fall below its limit, so these figures do not carry down to lower profits.

Between $66,668 and $135,000, each extra dollar of profit costs 32 cents: 30 cents of tax plus 2 cents of levy.

One set of rules can change the deductions behind these figures. Personal services income is income produced mainly, meaning more than 50%, from your own skills or efforts, and the ATO says those rules can affect how it is reported and which deductions can be claimed.

One year of a sole trader's money, quarter by quarter

A first-year sole trader can pay no income tax for 12 months and then receive one large bill, as this invented example shows. It follows a made-up tradie who starts on 1 July 2026, with no other income and steady work, and who stays out of PAYG instalments in the first year.

Each quarter brings $30,000 of sales and $10,000 of expenses, both before goods and services tax (GST), so profit is $20,000 a quarter and $80,000 for the year. Expected sales of $120,000 are above the $75,000 GST threshold, so GST registration applies from the start. GST collected is $3,000 a quarter and GST credits are assumed to be $1,000, leaving $2,000 to pay. Each month the owner moves $1,260 for income tax and about $667 for GST into a separate account.

The $1,260 is the year's $15,120 divided by 12. The ATO's own example of setting money aside divides an estimated instalment amount by 52, which here would be about $291 a week. The example assumes steady income, so a fixed amount would drift from the actual tax if income changed.

The table uses the standard quarterly dates. The ATO says lodging online may give an extra 2 weeks on a quarterly business activity statement (BAS), except for the October to December quarter, whose due date already includes a one-month extension.

PAYG instalments and why the second year surprises people

The second year can carry two lots of income tax: the first year's bill and instalments towards the second year. According to the ATO, an individual, including a sole trader, enters PAYG instalments automatically once their latest return and assessment show all three of these:

• instalment income of $4,000 or more
• tax payable of $1,000 or more
• estimated (notional) tax of $500 or more

Instalment income is gross business and investment income, excluding GST and capital gains. The tradie in the worked example clears all three, so enters the system. Payments start once the ATO sends an activity statement or instalment notice. The table below assumes that happens from the October to December 2027 quarter, with the same income and instalments of $3,780, being a quarter of the year's tax. To keep the sums simple, it also stays on 2026-27 rates, although the 15c rate falls to 14c from 1 July 2027.

Income tax of $26,460 falls due between the first notice and 28 July 2028, against $15,120 of tax for one year. That is 1.75 years of tax in under 12 months. Instalments are not an extra tax, as the ATO offsets them against the tax on the next return. The monthly set-aside covers all of it here: $15,120 is ready for the first bill, and $1,260 a month from July 2027 has built to $10,080 by the end of February 2028, with the first instalment still to come out of it. An owner who set nothing aside has to find $15,120 and then $3,780 within months.

How PAYG instalments are set, and the risk in changing them

The ATO sets a sole trader's PAYG instalments from the latest return, and changing them, known as varying, carries some risk. Most taxpayers pay quarterly. The ATO offers up to two options: pay an instalment amount it calculates, or multiply your instalment income by a rate it provides. The ATO says the rate option is best if income changes a lot.

The instalment amount is adjusted for growth in the economy, and the ATO's gross domestic product (GDP) adjustment for 2026-27 is 5%. The worked example leaves this adjustment out. Whatever option applies, any excess is refunded and any shortfall is paid when the return is lodged.

Instalments can also start early. The ATO says it's a good idea for people new to business to enter voluntarily, to avoid a large tax bill at lodgment. Requests can go through myGov or a registered tax agent.

If varied instalments are less than 85% of total tax payable, the ATO may charge interest on the difference, and depending on the circumstances there may also be penalties. The ATO says that if you're not sure, it is best not to vary. Whether to vary is a decision to take with a registered tax agent.

Do you have to charge GST? Only from $75,000 of turnover, with some exceptions

A sole trader must register for GST once GST turnover reaches $75,000, or when starting a new business that expects to reach $75,000 in its first year. According to the ATO, registration is also required for taxi, limousine and ride-sourcing services at any turnover, and for anyone who wants to claim fuel tax credits. Once required, registration is due within 21 days, and an Australian Business Number (ABN) has to come first.

The test uses income, not profit. According to business.gov.au, GST turnover is your business income, not your profit, so the worked example's $120,000 of sales is what counts, not its $80,000 of profit. A business with a modest profit and high material costs can still cross the line.

GST is 10% on most goods and services, and a registered business collects one-eleventh of the sale price from customers and pays it to the ATO. That money is not income for PAYG instalments. Below the threshold, registration is optional, and the ATO says you generally must stay registered for at least 12 months. Under $20 million of GST turnover, BAS reporting is quarterly unless the ATO directs monthly reporting or the owner chooses it, and a voluntarily registered business under $75,000 reports annually. See how the business activity statement works.

Do sole traders have to pay themselves super? No, but employees are different

A sole trader does not have to pay super guarantee for themselves. According to the ATO, they can choose to make personal super contributions, and that choice sits outside the tax figures above, because the worked example includes no contribution.

The rule on deductions works like this. A sole trader can claim a deduction for personal contributions if they meet the ATO's eligibility criteria, which include giving the fund a notice in the approved form and receiving an acknowledgment. Deducted contributions are taxed in the fund at 15% and count towards the concessional contributions cap, which the ATO gives as $32,500 from 1 July 2026. Going over the cap means extra tax.

Workers are a separate matter. A sole trader who employs people is responsible for their super guarantee. The super guarantee rate is 12% for 1 July 2026 to 30 June 2027, and under Payday Super, the ATO says employers must pay super guarantee for each payday.

Whether to contribute, how much and to which fund depends on your circumstances. That is a question for a licensed financial adviser, and this guide does not recommend making a contribution or using any fund.

What to keep and when to lodge

Most business records must be kept for 5 years, and a sole trader's return is due by 31 October when lodged by the owner. The ATO says the legal requirement to keep records covers all transactions relating to tax, super and registration. A record keeping checklist drawn from the ATO's rules:

• Documents for all business income and expenses
• The date, amount, description, purpose and GST information for each transaction
• Clear documents showing the business portion of any expense with personal use
• Workings behind any estimate or calculation you make for tax or super

For gaps in your paperwork, see claiming tax without receipts.

Lodgment has its own order: the ATO says to lodge all activity statements and pay instalments before lodging the tax return.

The ATO's myTax service is available to sole traders lodging their own return. According to the ATO, most registered tax agents can lodge after 31 October under a lodgment program, and someone using an agent for the first time should contact them before 31 October to be part of it. The notice of assessment then shows the tax owed, with the payment advice and due date.

Where an accountant fits

Lomandra Accounting is a CPA Practice registered with the Tax Practitioners Board. For sole traders, the firm's site says it helps "choose structures, register for GST when required" and "set a simple quarterly BAS and year end plan". The firm works online by phone, video and email. Read more about business accounting on the Sunshine Coast, or see the pages for an accountant in Peregian Beach and a tax accountant in Kawana Waters. You can contact Lomandra Accounting to ask about your own figures.