How Sole Trader Tax Works
As a sole trader, your business income is your personal income. You report your business profit (total income minus allowable deductions) on your individual tax return. You pay the same marginal tax rates as employees — there's no special "small business tax rate" for sole traders.
Key Obligations
| Obligation | When |
|---|---|
| ABN registration | Before you start trading |
| GST registration | When turnover exceeds $75,000/year |
| BAS lodgement | Quarterly (if GST registered) |
| PAYG instalments | Quarterly (once ATO issues a notice) |
| Tax return | 31 October (or tax agent deadline) |
| Super for yourself | Voluntary (but strongly recommended) |
PAYG Instalments
Once you lodge your first return showing business income, the ATO may issue PAYG instalment notices. These are quarterly pre-payments of your expected tax — like the withholding an employer does, but you manage it yourself. Not paying them means a large tax bill at the end of the year.
Super for Sole Traders
Unlike employees, no one is paying super for you. You can make voluntary contributions to your super fund and claim a tax deduction for them. This is one of the most effective tax strategies for sole traders — it reduces your taxable income now and builds your retirement savings.
Frequently Asked Questions
Do sole traders pay a different tax rate?
No. Sole traders pay individual income tax rates on their business profit. The company tax rate (25%) only applies to companies, not sole traders.
Do I need an ABN?
If you're running a business, yes. An ABN is free and can be applied for online in minutes. Without one, other businesses must withhold 47% from payments to you.
When do I need to register for GST?
When your turnover reaches $75,000 per year (or $150,000 for non-profits). Below that, GST registration is optional.
Can I pay myself a salary?
No. As a sole trader, the profit is your income. You can draw money from the business, but it's not a salary — it's you taking your own money.