Sole trader tax returns, done thoroughly

Who it is for

• Tradies, contractors and consultants trading under their own ABN
• Freelancers, creatives and online sellers
• Employees who also run a side business
• New sole traders lodging their first business schedule
• Sole traders registered for GST or paying PAYG instalments
• Anyone with overdue sole trader returns from earlier years

How a sole trader is taxed

A sole trader is an individual running a business, so there is no separate business entity for tax purposes. The ATO explains that a sole trader lodges with their individual tax file number and reports all income in one individual return, with business income and expenses shown in the business and professional items schedule. There is no separate sole trader tax return.

Business profit is added to any other income, such as wages, interest, dividends or rent, and taxed at individual rates. A sole trader generally has to lodge a return even if their income is below the tax-free threshold, because the ATO sets no minimum level of business income for lodging.

Money taken out of the business for personal use is not deductible. Wages paid to employees are deductible, but a sole trader cannot employ themselves, so drawings are not a wage expense. For a comparison with other structures, see our business structures guide.

These rates apply to Australian residents for the full year who are entitled to the full tax-free threshold. More detail is in our 2026–27 income tax rates guide.

What goes into the business schedule

The ATO describes three golden rules for a business deduction: the expense must be for the business and not private, only the business portion of a mixed-use expense can be claimed, and there must be records to prove it. Day-to-day operating costs, stock and services bought for the business, and some capital costs through depreciation are the usual categories.

Some amounts are never deductible, including traffic fines, private or domestic costs, most entertainment, and the GST part of a purchase where it can be claimed as a GST credit on the BAS. The ATO also confirms that general interest charge and shortfall interest charge incurred on or after 1 July 2025 can no longer be claimed.

• Business income: sales, fees and other gross business income, excluding GST if you are registered.
• Operating expenses: materials, subscriptions, insurance, phone and internet, advertising, accounting fees and the business share of vehicle costs.
• Employee costs: salary, wages and allowances paid to workers, plus their super guarantee.
• Depreciating assets: tools, equipment and vehicles, either written off or depreciated (see below).
• Contractor income: where you provide services covered by taxable payments reporting, amounts reported by the businesses that paid you are now pre-filled. The ATO notes most of this data only arrives after 28 August each year.

Where income is personal services income and the PSI rules apply, the ATO notes those rules limit the deductions that can be claimed against it. Whether they apply is something we check as part of the return.

The $20,000 instant asset write-off

Small businesses with aggregated turnover under $10 million that use the simplified depreciation rules can claim an immediate deduction for the business portion of an asset costing less than $20,000, in the year it is first used or installed ready for use. The limit applies per asset and covers new and second-hand items.

For 2025–26 the $20,000 limit applied to assets first used or installed between 1 July 2025 and 30 June 2026. From 1 July 2026 the ATO confirms the $20,000 limit is permanent and that the measure is now law. Assets costing $20,000 or more go into the small business pool, which is depreciated at 15% in the first year and 30% after that, and a pool balance under $20,000 at year end can be written off.

The test is on the full cost, not the business share. In the ATO's own example, a $40,000 ute used 40% for business does not qualify, even though the business portion is $16,000; that portion goes into the pool instead. Our instant asset write-off guide covers the rules in more detail.

PAYG instalments and GST

No tax is withheld from sole trader income, so the ATO uses PAYG instalments to collect tax through the year. An individual, including a sole trader, enters the system automatically when the latest return shows instalment income of $4,000 or more, tax payable on the latest assessment of $1,000 or more and estimated (notional) tax of $500 or more. New businesses can also enter voluntarily to avoid a large bill at tax time.

Most people pay quarterly. The standard due dates are 28 October, 28 February, 28 April and 28 July, and instalments paid during the year are credited against the tax in the assessment. In the 2026–27 Budget the Government announced monthly opt-in and "dynamic" PAYG instalments from 1 July 2027; the ATO states these measures are not yet law.

GST registration is required within 21 days once GST turnover reaches $75,000 or more, when a new business expects to reach that level in its first year, for taxi, limousine and ride-sourcing drivers regardless of turnover, for sharing economy and digital platform income, and to claim fuel tax credits. Registered sole traders lodge a BAS, which can also cover PAYG instalments and PAYG withholding. See our BAS and GST service, the GST registration guide and the PAYG guide.

PAYG instalments and BAS amounts paid during the year are taken into account in your sole trader assessment, so lodging all activity statements before the tax return keeps the numbers clean.

Offsets, losses and super

Small business income tax offset

Sole traders with aggregated turnover under $5 million can receive the small business income tax offset. From 2021–22 onwards the rate is 16% of the portion of tax that relates to net small business income, capped at $1,000 a year. The ATO works it out from the return and shows it on the notice of assessment; a business loss means no offset.

Business losses

A sole trader can only offset a business loss against other income such as wages if the non-commercial loss rules are met. Generally, the total of taxable income, reportable fringe benefits, reportable super contributions and net investment losses must be under $250,000, and the business must pass one of four tests: assessable income of at least $20,000, a profit in 3 of the last 5 years, at least $500,000 of real property used in the business, or at least $100,000 of other assets. Otherwise the loss is generally deferred to a later year, unless the Commissioner's discretion applies. Separate rules apply to some primary production and professional arts businesses where other income is under $40,000.

Super for yourself

Sole traders do not have to pay super guarantee for themselves, though they must pay it for any employees. Personal contributions can generally be claimed as a deduction after notifying the fund, and the ATO says most people can do so until age 75. Deductible contributions count towards the concessional cap, which is $32,500 for 2026–27 (it was $30,000 for 2024–25 and 2025–26).

Records, deadlines and amendments

The ATO requires business records of income, expenses and any calculations or estimates, generally kept for 5 years. Where an expense is part business and part private, you need records that show the business portion. A separate business bank account is not required, but business.gov.au recommends one because it makes income and expenses easier to track. Our business record keeping guide has more.

A self-lodged 2025–26 return is due by 31 October, and because 31 October 2026 is a Saturday the ATO's weekend rule moves it to Monday 2 November 2026. Clients who engage a registered tax agent before 31 October can generally lodge later: for 2025–26 returns, most individuals are due by 15 May 2027 (with a 5 June 2027 concession if any payment is also made by then), those whose latest return had a tax liability of $20,000 or more are due by 31 March 2027, and anyone with earlier returns outstanding at 30 June 2026 is due by 31 October 2026. See our tax return deadlines guide.

If something is missed, sole traders have 4 years to amend an assessment for 2024–25 and later income years, compared with generally 2 years for 2023–24 and earlier. See amending a tax return.

Note that the $1,000 standard deduction for work-related expenses, which starts in 2026–27 returns, is based on labour income such as wages. The ATO says it does not apply to people who only earn business income.

Why sole traders choose Ross Accounting

Ross Accounting was established by David Ross in 2003 and looks after individuals and small to medium businesses across Australia from its head office in Brookvale NSW, with a branch in Redland Bay, Queensland. Bring your income records, receipts, invoices and bank statements and we will take care of the rest. You are only as good as what you can prove, so good records through the year are the best way to a bigger refund.

Our team also handles bookkeeping in Xero and MYOB, BAS and GST, and tax planning, so your year-round records and your tax return fit together. If you are just starting out, our starting a business service can help with the structure question.

Ross Accounting Pty Ltd is a registered tax agent with the Tax Practitioners Board, registration number 21430015 (TPB public register). This page is general information only; for advice on your own situation, contact us.

How it works

1. 1
   Get in touch

   Call 1300 711 149, or contact us, ideally before 31 October so your return can come under the tax agent lodgment program.

2. 2
   Send your records

   Gather your business income and expense records, asset purchases, BAS and bank statements, or upload them through the MyAccountants app (accountant code "Ross").

3. 3
   We prepare the return

   We complete your individual return and business schedule, reconcile it with your BAS and PAYG instalments, and look for every deduction and concession you are entitled to.

4. 4
   Review and lodge

   We go through the figures with you, answer your questions and lodge with the ATO once you are happy.

What to bring

• Your ABN and, if registered, GST details
• Sales records, invoices issued and any payment platform or marketplace reports
• Receipts and invoices for business expenses
• Business bank and credit card statements
• Invoices for tools, equipment and vehicles bought during the year
• Vehicle logbook or records of business kilometres
• Copies of BAS and PAYG instalment notices lodged or paid during the year
• Wages and super records if you employ staff
• Income statements for any wages, plus interest, dividend and rental details
• Personal super contributions made during the year, and confirmation that you notified your fund of your intention to claim a deduction