In short
A sole trader in Australia is taxed as an individual: business profit is reported in the owner's own tax return and taxed at the resident rates, which for 2026–27 range from nil on the first $18,200 to 45% above $190,000, plus the Medicare levy, which is generally 2%. Ross Accounting helps tradies, freelancers and consultants with bookkeeping, GST and BAS, PAYG instalments and the annual return, for clients across Australia.
How a sole trader is taxed
Operating as a sole trader means you and the business are the same person for tax purposes. According to business.gov.au, you lodge using your individual tax file number, you are personally liable for tax on all the business income, and profits or losses cannot be split with family members. There is no separate business tax return: business income and expenses go into your individual return.
Because the business profit is added to any other income you earn, it is taxed at the individual resident rates. The ATO has published these rates for 2026–27:
| Taxable income | Tax on this income |
|---|---|
| $0 to $18,200 | Nil |
| $18,201 to $45,000 | 15c for each $1 over $18,200 |
| $45,001 to $135,000 | $4,020 plus 30c for each $1 over $45,000 |
| $135,001 to $190,000 | $31,020 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,370 plus 45c for each $1 over $190,000 |
These rates assume a full year of Australian residency and the full tax-free threshold, and they leave out the Medicare levy, which the ATO sets at 2% of taxable income, and any Medicare levy surcharge. The 2025–26 rates used the same thresholds but a 16% second rate. See our 2026–27 income tax rates guide for more detail.
ABN and GST: when registration becomes compulsory
Registering for an ABN through the Australian Business Register is free, but business.gov.au notes that you need to be running a business or other enterprise to be entitled to one. Our guide on registering an ABN and business name covers the steps.
GST is a separate decision. Under the ATO's current rules (page updated September 2026), registration is compulsory when:
- your GST turnover reaches $75,000 or more, looking back over the current month and the previous 11 months, or forward over the current month and the next 11
- you start a business and expect to reach $75,000 in the first year
- you provide taxi, limousine or ride-sourcing travel, whatever your turnover
- you earn income through the sharing economy or digital platforms, such as food delivery work
- you want to claim fuel tax credits
Once you are required to register, the ATO gives you 21 days to do it. Below the threshold, registration is optional, and anyone who registers voluntarily generally has to stay registered for at least 12 months. Tracking turnover monthly makes it easier to spot when the threshold is close. More in our GST registration guide.
BAS and PAYG instalments through the year
A GST-registered sole trader with GST turnover under $20 million generally lodges a business activity statement (BAS) each quarter, unless the ATO has directed monthly reporting. According to the ATO, a business registered for GST voluntarily with turnover under $75,000 lodges annually instead. The same statement usually carries PAYG instalments, which are prepayments of your own income tax so the bill does not arrive all at once after year end.
Under the ATO's current entry thresholds, an individual, including a sole trader, is automatically entered into PAYG instalments when the latest return shows instalment income of $4,000 or more, tax payable on the latest assessment of $1,000 or more, and notional tax of $500 or more. Instalment income is gross business and investment income, excluding GST and capital gains.
| Quarter | Due date |
|---|---|
| July to September 2026 | 28 October 2026 |
| October to December 2026 | 28 February 2027 (a Sunday, so the next business day applies) |
| January to March 2027 | 28 April 2027 |
| April to June 2027 | 28 July 2027 |
The ATO says lodging online may give an extra 2 weeks, and lodging through a registered tax or BAS agent may also give extra time, but the October to December quarter gets no further extension because it already includes one. Our BAS due dates guide and the tax calendar list each date.
Setting aside GST and a share of every invoice for tax in a separate account is the simplest way to avoid a BAS you cannot pay.
Deductions and concessions for tradies and freelancers
Sole traders can generally claim the business portion of expenses incurred in earning business income: materials, tools, vehicle costs, phone and internet, insurance, software and accounting fees. Anything used partly for private purposes needs to be apportioned. Two small business concessions are particularly relevant.
Instant asset write-off: $20,000 per asset
From 1 July 2026, small businesses with aggregated turnover under $10 million that use the simplified depreciation rules can immediately deduct eligible assets costing less than $20,000 that are first used or installed ready for use in the year. The ATO states this permanent measure, announced in the 2026–27 Budget, is now law. The limit applies to the asset's total cost, not just the business share: the ATO's own example shows a $40,000 ute used 40% for business does not qualify, and the business portion goes into the small business pool instead. See our instant asset write-off guide.
Small business income tax offset
Sole traders with aggregated turnover under $5 million may receive this offset, which the ATO works out from the return. Its table shows a rate of 16% of the tax on net small business income for 2021–22 and later years, capped at $1,000 a year. A net business loss counts as zero, so there is no offset in a loss year.
Contractors and freelancers: the personal services income rules
When income is earned mainly (more than 50%) through an individual's personal skills or labour, such as a contract electrician, IT consultant or designer billing for their time, the ATO treats it as personal services income. Unless you qualify as a personal services business, the PSI rules apply and can limit the deductions you claim.
You can self-assess as a personal services business by meeting the results test for at least 75% of that income, or by meeting the unrelated clients, employment or business premises test while also passing the 80% rule. That rule fails if 80% or more of your PSI comes from one client and its associates, which is common for contractors working mainly through one builder or agency. The tests are applied each year, so a change in clients can change the outcome.
Super for yourself
business.gov.au confirms that paying super to yourself as a sole trader is optional. If you do contribute, the ATO allows a tax deduction for personal contributions once you give your fund a notice in the approved form and receive its acknowledgment; other eligibility conditions also apply. Deducted contributions are generally taxed at 15% in the fund and count towards the concessional contributions cap, which is $32,500 for 2026–27 (it was $30,000 for 2024–25 and 2025–26).
If you employ staff, their super is compulsory. Our Payday Super guide and super contribution caps guide explain the current rules.
Records and bookkeeping
The ATO requires most business records to be kept for 5 years, generally counted from when the record was prepared or obtained or the transaction was completed, whichever is later. Records must be in English or easily converted to it. business.gov.au does not require a sole trader to have a separate business bank account, but it recommends one because it makes income and expenses much easier to track.
Cloud software such as Xero or MYOB, fed by bank feeds and photographed receipts, keeps GST coding and the BAS accurate as you go. Our business record keeping guide covers what to keep.
When a company or trust is worth considering
A sole trader structure is cheap and easy to run, but the owner carries unlimited liability, so personal assets can be exposed if the business runs into debt. Tax is the other trigger. As business.gov.au explains, a sole trader gets the individual tax-free threshold and pays individual rates, while a company has no tax-free threshold and must lodge its own return. The ATO sets the full company tax rate at 30%, while companies that are base rate entities apply a 25% rate from 2021–22 onwards, which covers 2026–27. As profits rise, or when you take on staff, contracts or bigger risks, the comparison can shift.
Changing structure has costs and ongoing obligations, so it is a decision for your own numbers. David Ross offers a free half hour of advice on business structures; our choosing a business structure guide and company tax rates guide are good background reading.
How Ross Accounting helps sole traders
- Bookkeeping and Xero and MYOB set-up, reconciliations and receipt processing
- GST and BAS preparation and lodgment, including PAYG instalments
- Sole trader tax returns, including the business schedule and small business concessions
- Tax advice and planning before 30 June, and help with ATO tax debt if a BAS has fallen behind
- Starting a business and company formation when it is time to change structure
Ross Accounting Pty Ltd is a registered tax agent with the Tax Practitioners Board (registration 21430015). This page is general information only. For advice on your situation, contact us or see what new clients need.
Frequently asked questions
What tax rate does a sole trader pay in 2026–27?
A sole trader pays tax at the individual resident rates on total taxable income, including business profit. For 2026–27 the ATO rates are nil up to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above $190,000, plus the Medicare levy, which is generally 2% of taxable income.
Does a sole trader earning under $75,000 need to register for GST?
Generally no. GST registration is compulsory once GST turnover reaches $75,000, but the ATO also requires it regardless of turnover for taxi and ride-sourcing drivers, sharing economy and digital platform workers, and anyone claiming fuel tax credits. Below the threshold registration is optional, and voluntary registrants generally stay registered for at least 12 months.
When is the first quarter BAS for 2026–27 due?
For a quarterly lodger, the BAS for July to September 2026 is due on 28 October 2026, according to the ATO. Lodging online may give an extra 2 weeks, and lodging through a registered tax or BAS agent may also give extra time.
Do sole traders have to pay super for themselves?
No. Paying super to yourself as a sole trader is optional. Personal contributions can be claimed as a tax deduction if you give your fund a valid notice and receive its acknowledgment, and deducted contributions count towards the concessional contributions cap, which the ATO sets at $32,500 for 2026–27.
Do the personal services income rules apply to a contractor with one main client?
Often they do. Income mainly from your own skills or effort is personal services income, and if 80% or more of it comes from one client and its associates you fail the 80% rule, so you can only self-assess as a personal services business by meeting the results test for at least 75% of that income.
General information only, not personal advice. Tax rules change and your circumstances matter, so talk to us before acting. See our disclaimer.
