Sole Trader Tax Rate in Australia: How Much Tax Do You Pay?

The first year of invoicing ends the same way for most sole traders: the money came in, nothing was taken out of it, and the tax bill arrives after the return is lodged as one figure. The sole trader tax rate in Australia is the individual rate, applied to business profit on your own personal return, and nobody withholds a cent of it along the way. On $80,000 of profit in 2026-27 that bill is about $15,120 with the Medicare levy, roughly 19 cents in every dollar you earned, and the year after, the ATO starts collecting it quarterly in advance.

The brackets are only part of the figure. The levy, two offsets the ATO applies without being asked, and a study loan each move the total by thousands, and the calculators that rank for this question leave most of them out.

What follows is the rate table for both years that matter, three worked bills, the offsets, the add-ons, and the instalment mechanism that catches people in year two.

How a sole trader is taxed

A sole trader’s business profit, which is business income minus deductions, is added to any wages, interest or other income and taxed at the individual resident rates on one personal return, with the business and professional items schedule attached. There is no separate business return and no separate business rate. The ATO assesses the lot together and sends one notice of assessment.

Lodging is required whatever the profit. The ATO’s own line is that “there’s no threshold for business income”, so a sole trader lodges even when the year came in under the tax-free threshold, and a year that produced a loss still lodges. The loss is what gets carried, and a return is how it gets carried.

The rate applies to taxable income, not to turnover and not to what landed in the bank. GST collected on invoices is never income, and the deductions that reduce profit are where a sole trader has any control over the number.

Two years are in play at once: the 2025-26 return, for income to 30 June 2026, is the one being lodged now, and 2026-27 is the year you are earning in, with a slightly different second bracket.

Sole trader tax rates for 2026-27 and 2025-26

The ATO’s resident tax rates table for the two years differs in one place: the second bracket, which was 16 cents in 2025-26 and is 15 cents in 2026-27. Everything else is identical.

Taxable income	2026-27 (earning now)	2025-26 (lodging now)
$0 to $18,200	Nil	Nil
$18,201 to $45,000	15c for each $1 over $18,200	16c for each $1 over $18,200
$45,001 to $135,000	$4,020 plus 30c for each $1 over $45,000	$4,288 plus 30c for each $1 over $45,000
$135,001 to $190,000	$31,020 plus 37c for each $1 over $135,000	$31,288 plus 37c for each $1 over $135,000
$190,001 and over	$51,370 plus 45c for each $1 over $190,000	$51,638 plus 45c for each $1 over $190,000

The table is income tax only. Four things sit outside it and all four show up on a sole trader’s assessment:

• the Medicare levy, 2% of taxable income, charged separately
• the low income tax offset and the small business income tax offset, which reduce the income tax figure
• compulsory study and training loan repayments, worked out on their own scale
• the Medicare levy surcharge, for higher earners without private hospital cover.

The 14% rate from 1 July 2027 is on the ATO’s new tax cuts page with the words “this measure is now law”.

The rate on your last dollar is not the rate on all of them. A sole trader on $80,000 sits in the 30% bracket and pays nowhere near 30% of $80,000, because the first $18,200 is untaxed and the next $26,800 is taxed at 15%.

What you actually pay at $40,000, $80,000 and $150,000

The totals first, all for 2026-27, all profit from the business, single, no dependants, no study loan: about $2,972 on $40,000, about $15,120 on $80,000 and about $38,570 on $150,000. That is 7.4%, 18.9% and 25.7% of profit respectively, and the effective rate at your own expected profit is the number to save per invoice, not the marginal rate.

The lines below are laid out the way the notice of assessment lays them out: income tax on the brackets, less the non-refundable offsets, plus the Medicare levy.

	$40,000 profit	$80,000 profit	$150,000 profit
Income tax on the brackets	$3,270	$14,520	$36,570
Low income tax offset	$575	nil	nil
Small business income tax offset	$523	$1,000 (capped)	$1,000 (capped)
Income tax after offsets	$2,172	$13,520	$35,570
Medicare levy at 2%	$800	$1,600	$3,000
Total	$2,972	$15,120	$38,570
Effective rate	7.4%	18.9%	25.7%

The $40,000 line is the one first-year sole traders get wrong in their favour: the brackets say $3,270, the two offsets take $1,098 off, and the levy puts $800 back. On the 2025-26 table the $80,000 bill is $15,388, the figure for the return being lodged now. A study loan changes every line, and the section after the offsets puts the number on it.

The two offsets most sole traders never hear about

Both are automatic. The ATO works them out from the return, shows them on the notice of assessment under non-refundable tax offsets, and neither needs a form. Both reduce income tax and stop at zero: an unused amount is not refunded and does not touch the Medicare levy, which the ATO describes as an amount you pay in addition to the tax on your taxable income, 2% of it under the Medicare Levy Act. Together they are worth up to $1,700 at modest profit.

The low income tax offset is available to anyone whose taxable income is up to $66,667. It is $700 at $37,500 or less, then $700 minus 5 cents for every dollar above $37,500 up to $45,000, then $325 minus 1.5 cents for every dollar above $45,000 until it runs out at $66,667. An employee gets it too. A sole trader on a thin first year gets it in full.

The small business income tax offset is the one employees do not get. For a sole trader whose business has aggregated turnover under $5 million, it is 16% of the income tax attributable to net small business income, capped at $1,000 a year. Where all of your taxable income is business income, the offset is 16% of your basic income tax liability, so the $1,000 cap is reached at about $6,250 of income tax, which on the 2026-27 table is roughly $52,500 of profit. Above that, every sole trader gets the flat $1,000.

Net small business income is narrower than the profit on the schedule. Wages, net capital gains and personal services income (unless you run a personal services business) stay out of it, accounting fees, donations and personal super are not deducted in working it out, and a sole trader with a day job gets the offset on the business slice only.

The Medicare levy and study loan repayments

The Medicare levy is 2% of taxable income, charged on top of the brackets and untouched by the offsets. Below a threshold it falls away: for a single person in 2025-26 the ATO’s Medicare levy reduction page puts the lower threshold at $28,011, below which no levy is payable, and the upper threshold at $35,013, below which it is reduced. Family thresholds differ. The surcharge for higher earners without private hospital cover is a separate charge on its own income tests and sits outside this post.

A study loan adds a second scale. Since 2025-26, compulsory repayments on HELP and the other study and training loans are worked out with marginal rates, charged only on repayment income above a minimum, and the ATO’s study and training loan repayment thresholds for 2026-27 are:

• nil up to $69,528
• 15 cents for each dollar over $69,528, up to $129,717
• $9,028 plus 17 cents for each dollar over $129,717, up to $186,050
• 10% of your whole repayment income from $186,051.

For 2025-26 the same scale starts at $67,000, with 15 cents to $125,000, $8,700 plus 17 cents to $179,285, and 10% of the lot above that. Repayment income is taxable income plus reportable fringe benefits, net investment losses, reportable super contributions and exempt foreign employment income, so a deductible personal super contribution lowers your tax and not your repayment.

On the $80,000 example that is $1,570.80 on top of the $15,120 in 2026-27, taking the total to roughly $16,690. On $150,000 it is $12,476 on top, and the bill passes $51,000. None of the calculators ranking for this question include it.

Nobody withholds: PAYG instalments and the first-year bill

An employee’s tax leaves every pay before it arrives. A sole trader’s does not leave at all, so the first year ends with the whole year’s tax due in one hit after the return is assessed, and from the second year the ATO collects it in advance.

The ATO’s Starting PAYG instalments page sets the automatic entry test, and all three parts have to be met: instalment income of $4,000 or more on your latest return, tax payable of $1,000 or more on your latest notice of assessment, and estimated notional tax of $500 or more. Instalment income is gross business and investment income, excluding GST and capital gains, so almost any trading year meets that part, and it is the $1,000 of tax payable that usually decides it. Entry arrives as a notice in your myGov inbox, and most people then pay quarterly.

Instalments change when you pay, not what you pay. Each one is credited against the year’s assessment, an overpayment comes back as a refund, and an instalment that looks too high can be varied. You can also enter voluntarily in year one through myGov under Tax, Manage, Tax registrations, which turns the one-hit bill into four smaller ones before the ATO does it for you.

The 2025-26 return is due 31 October 2026 self-lodged, and through a registered agent’s lodgement program most individuals get until 15 May 2027, earlier for anyone whose last return carried a liability of $20,000 or more or who has a prior year outstanding. Getting it done costs $330 as a sole trader tax return with the personal return included, or $440 registered for GST, which the sole trader accountant cost post sets against the rest of the market. A first bill that cannot be met in one go goes on an ATO payment plan once the year is assessed, and the instalment and activity statement dates through the year are on the small business tax calendar.

What changes the profit, not the rate: deductions, GST and PSI

The tables fix the rate. What a sole trader controls is taxable income, through deductions, and two things that look like tax and are not in the table at all.

Deductions follow the ATO’s general rule that most operating expenses of running the business are claimable in the year they are incurred, business portion only where use is mixed. The ones that move a sole trader’s number most:

• running costs of a home-based business at the fixed rate, 70 cents an hour for 2025-26, with a record of every hour worked from home for the whole year
• car use at 91 cents a kilometre for 2026-27, capped at 5,000 kilometres a year, or actual costs with a logbook
• equipment under $20,000 written off in the year of purchase, a limit that is now permanent
• a personal super contribution, deductible only if the fund has acknowledged your notice of intent before you lodge
• the tax agent’s fee, the bookkeeping and the rest of the cost of managing the business’s tax affairs.

Tradie tax deductions works the vehicle, tools and licence claims through in detail for the largest sole trader trade.

GST is not income tax and does not appear in the rate table. Registration is required within 21 days once GST turnover reaches $75,000, and the GST registration threshold post covers the two turnover tests and the projected-turnover release valve. The GST you collect belongs to the ATO from the day you invoice it, which is why it is never profit and why a BAS debt and an income tax debt are two different problems.

Personal services income is the rule set that catches contractors. Where more than 50% of your income is for your own skills or effort, the ATO’s PSI rules may apply, restricting what can be deducted and attributing the income to you as an individual. They do not change the rate, your ABN, your GST registration or whether you are running a business, and for a sole trader selling a product or a crew’s labour they rarely bite.

A year that ends in a loss is offset against your other income, unless the ATO’s non-commercial loss rules defer it to a later year of the same business.

Sole trader versus company: is 25% better?

The 25% rate that gets quoted at sole traders is the base rate entity rate, and it is the tax on profit a company keeps. A company with aggregated turnover under $50 million and no more than 80% passive income pays 25% on its profit, 30% otherwise. Money the owner then takes out as salary or dividends is taxed again in the owner’s hands at the individual rates, with a franking credit for the company tax already paid. The saving is a deferral on profit left in the company, not a 22-point cut, and sole trader vs Pty Ltd for tradies runs the full argument with the personal services income test that decides it for a labour-only contractor.

What a sole trader keeps that a company does not: the $18,200 tax-free threshold, the low income tax offset, the small business income tax offset, and one return instead of two. On the $80,000 example above, those are worth about $1,000 in offsets and $18,200 of untaxed income before the comparison starts.

Where a company wins: profit the owner genuinely leaves in the business is taxed at 25% rather than at the owner’s marginal rate, and the company is a separate legal person whose creditors generally cannot reach the owner’s own assets, which for an owner whose house is the main thing they own can matter more than any rate. The rest turns on profit, drawings, contracts and risk. How the sole trader rate sits against the other three is one part of the bigger question of how business structures in Australia differ on tax, and that comparison is where the decision belongs.

For year one, the sequence is short:

• Work out the effective rate at your expected profit from the table above and set it aside per invoice
• Or enter PAYG instalments voluntarily through myGov so the first bill arrives in four parts
• Lodge the return with the business schedule by 31 October, or through an agent by the later date
• Let the two offsets land on the assessment: there is nothing to claim and nothing to apply for