Embarking on the journey of becoming your own boss and launching a sole trader business brings newfound freedoms — the ability to chart your own professional path and enjoy the rewards of your hard work. However, being a sole trader also comes with extra financial responsibilities and the need to comply with tax regulations.
Whether you’re just starting out, considering a shift from a company structure, or already established and looking to project your tax obligations for the year ahead, it’s vital to understand how tax rates apply to sole traders in Australia.
Sole Trader tax rates in Australia
The tax rate applicable to sole traders is identical to that of individuals employed by others. This simplicity distinguishes sole trader income tax from the tax structures of companies. It also implies that you only pay taxes on your personal and business income exceeding the tax-free threshold.
Below is a summary of the current tax rates applicable to sole traders for the 2023-2024 financial year.
| Taxable Income | Tax Payable |
| 0-$18,200 | Nil |
| $18,201 – $45,000 | 19 cents for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5 cents for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37 cents for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45 cents for each $1 over $180,000 |
Note: The above rates do not incorporate the Medicare Levy surcharge, which may also apply to you.
How is tax calculated for Sole Traders
As a sole trader, you report all income in your personal tax return using the business items section for business-related income and expenses. You can claim deductions for eligible business activities such as travel, home office costs, or vehicle use.
Your taxable income equals your total income minus deductions. You’re then taxed according to the same progressive scale as individuals, shown above.
How do Sole Traders pay tax?
As a sole trader, you must lodge an annual individual tax return. To avoid a large tax bill at year-end, you can opt into the Pay As You Go (PAYG) instalment system.
PAYG makes paying tax easier by allowing quarterly instalments throughout the year. This spreads your payments and helps you manage cash flow more effectively.
When first starting out, estimate your expected income and select a quarterly instalment amount based on that estimate. Once your business is established, the Australian Taxation Office (ATO) will use your prior year’s income to calculate future PAYG instalments.
You can pay instalments easily through your myGov account, which links directly to your tax information. Alternatively, you can pre-pay instalments via a tax bill account and use BPAY to manage payments.
Do Sole Traders need to register for GST?
If you’re operating as a sole trader, your business must register for Goods and Services Tax (GST) if any of the following apply:
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Your GST turnover is $75,000 or more ($150,000 for a non-profit organisation).
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You provide taxi, ride-share, or limousine services, regardless of turnover.
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You intend to claim fuel tax credits for your business.
Once registered for GST, you’ll need to lodge quarterly Business Activity Statements (BAS), which cover both GST payments and PAYG instalments.
Next Steps
Maintaining control of your tax responsibilities is essential. Mistakes can lead to costly penalties, and poor management can disrupt your cash flow.
There are several steps you can take to simplify the process of handling your business taxes, particularly as the end of the financial year approaches. These measures encompass leveraging accounting software like Xero, diligently maintaining precise records of your earnings and expenses, and seeking the assistance of an accountant. Many sole traders in Australia opt for the guidance of an accountant or tax advisor and engage with them once or twice annually to ensure they are effectively managing their tax affairs.
If you’d like to discuss your Sole Trader tax obligations with a Lemonade Beach Accountant, we encourage you to book a complimentary consultation.
