Working out your tax as a sole trader
Disclaimer: This blog provides general information and opinion only and is not personal legal advice. Clinicians should seek independent professional or legal advice for their specific personal circumstances. This information is correct at time of writing – however you should check the ATO website for the most up to date tax rates.
Being a sole trader in Australia means the income you earn from your business is treated as personal income for tax purposes. Unlike a company, a sole trader isn't taxed at a flat business rate — instead your business profits are added to any other income you have, and you pay tax at the individual income tax rates set by the Australian Taxation Office (ATO) based on your total taxable income.
How Sole Trader Tax Works
As a sole trader, you must lodge an annual tax return with the ATO, even if your business income is below the tax-free threshold ($18,200 for the 2025–26 financial year). Business profits are calculated by subtracting your allowable business expenses from your total business income - this figure becomes your taxable income. The tax you owe is then based on the individual tax brackets that apply to that year.
Australia uses a progressive tax system — meaning the more you earn, the higher the rate of tax you pay on the income above each threshold. For the 2025–26 financial year:
- No tax on income up to $18,200
- 16c for each $1 over $18,200 up to $45,000
- 30c for each $1 over $45,000 up to $135,000
- 37c for each $1 over $135,000 up to $190,000
- 45c for each $1 over $190,000
These rates do not include the 2% Medicare levy that most taxpayers pay.
Using the ATO Simple Tax Calculator
If you want a quick estimate of how much tax you might owe as a sole trader, the ATO offers a Simple Tax Calculator on its website. This tool estimates the tax payable on your taxable income for a given financial year. To use the calculator you'll need your taxable income for the financial year and your residency status for tax purposes.
Keep in mind that the Simple Tax Calculator only estimates the tax on your income — it doesn't include components like the Medicare levy, levies surcharge, HELP/HECS repayments, or offsets. For a more detailed estimate, the ATO also offers a more comprehensive Income Tax Estimator tool.
Beyond the Calculator
While calculators are useful for estimates, your actual tax payable is finalised when you lodge your annual tax return. As a sole trader, you may also need to consider PAYG instalments throughout the year where the ATO requests prepayment of your expected tax, helping avoid a large bill at the end of the financial year.
Disclaimer: This blog provides general information and opinion only and is not personal legal advice.