If you are self-employed as a sole trader in Australia, your business income and expenses are reported on your individual tax return using the business and professional items schedule. You pay the same income tax rates as employees, but you are responsible for managing your own tax payments — no employer withholds tax for you.
What “Self-Employed” Means for Tax
As a sole trader:
- Your business is not a separate legal entity — income is your income
- You report net business income (revenue minus allowable deductions) on your individual return
- You are taxed at individual marginal tax rates
- You pay the Medicare levy
- If you have a HECS-HELP debt, compulsory repayments apply once income exceeds the threshold
You may also need to register for GST if your annual turnover is $75,000 or more.
Key Forms and Sections
When lodging your return via myTax:
- Complete the Business and professional items section
- Select your business activity (primary production or non-primary production)
- Enter gross income, allowable deductions, and net profit or loss
The ATO uses this data to calculate your taxable income alongside any employment income.
Declaring Business Income
Business income includes:
- Revenue from services (invoices paid, whether cash or electronic)
- Revenue from selling goods
- Contractor and consulting fees
- Business income from digital platforms (Airtasker, Uber, Airbnb where run as a business)
- Income received in prior year for work done this year (generally — cash basis vs accruals rules apply)
All business income must be declared, regardless of whether it was paid in cash. The ATO’s data-matching program includes digital platform data and bank transaction analysis.
Common Business Deductions for Sole Traders
| Deduction | Notes |
|---|---|
| Home office expenses | Fixed rate 67c/hour or actual cost method |
| Vehicle expenses | Logbook method or cents-per-km (up to 5,000km) |
| Tools and equipment | Immediate deduction for assets under $20,000 (small business instant asset write-off — check current thresholds) |
| Phone and internet | Work proportion only |
| Professional development and training | Must be directly related to current business |
| Professional association fees | Must be related to business activity |
| Accounting and bookkeeping fees | Deductible |
| Business insurance | Deductible |
| Marketing and advertising | Deductible |
| Subcontractor payments | Deductible, but check PAYGW and contractor obligations |
| Subscriptions (software, platforms) | Work proportion only |
| Depreciation on business assets | Assets over the instant write-off threshold depreciated over effective life |
What Is Not Deductible
- Personal expenses mixed in with business accounts
- Entertainment (client lunches etc.) — generally 50% non-deductible for FBT purposes; for sole traders, social meals are non-deductible
- Capital expenditure (goes to depreciation over time, not an immediate deduction — with exception of the instant asset write-off)
- Fines and penalties
PAYG Instalments — Paying Tax During the Year
Unlike employees, self-employed people do not have tax withheld from income. Once your business income reaches a threshold (broadly, if your last return showed $4,000+ in tax owing from business income), the ATO will automatically enrol you in the PAYG instalments system.
Under PAYG instalments:
- The ATO issues quarterly or annual instalment notices (through myGov/ATO online services)
- Each instalment is based on a percentage of your previous year’s income (GDP-adjusted)
- You can vary the instalment amount if your income has changed significantly
- Instalments are credited against your tax liability at year-end
If you are not yet enrolled in PAYG instalments but expect to owe tax at year-end, setting aside 25–30% of business income in a separate account helps avoid a large year-end bill.
Superannuation for Sole Traders
Self-employed people are not required to pay themselves the Superannuation Guarantee — but they can make concessional (personal deductible) super contributions and claim a tax deduction. The contribution must be:
- Made to a complying super fund before 30 June
- Followed by lodging an ATO Notice of Intent to Claim a Deduction with your fund before lodging your return (or before the contribution is used to start a pension)
The concessional cap is $30,000 for FY2025–26 (including any employer contributions if you also have part-time employment).
Frequently Asked Questions
How is a sole trader different from a company for tax? A sole trader pays tax at individual rates (up to 45% + Medicare levy). A company pays tax at 25% (base rate for small business). However, a company income must eventually be distributed to shareholders as dividends, which are taxable. The benefit of structuring as a company depends on your income level, retained earnings, and personal circumstances — get advice before changing structure.
Do I need to lodge a separate business tax return? No. Sole traders report business income and expenses as part of their individual income tax return via the business schedule. Companies and trusts require separate returns.
What records do I need to keep? Keep records for five years from lodgement — income records (invoices, bank statements), expense receipts, vehicle logbook, asset purchase records, and depreciation schedules.
What if my business makes a loss? Sole trader business losses may offset other income (wages, investment income) in the same year. However, the non-commercial loss rules may defer losses to future years if your activity does not meet a primary business test. The rules are complex — specialist advice is recommended.
This article provides general tax information. For advice tailored to your situation, speak with a registered tax agent. Find one through the Tax Practitioners Board register.