If you've started invoicing clients under your own name — freelance designer, Uber driver, tradie picking up jobs, consultant on the side — congratulations, you're a sole trader. Australia's simplest business structure also has the simplest tax obligations: business income flows straight onto your individual tax return. Simple, but not effortless. Get the GST threshold, BAS rhythm, and PAYG installments right from day one and you avoid 90% of first-year sole-trader pain. Here's the FY2025–26 playbook.
What "sole trader" actually means
A sole trader is an individual running a business under their own legal identity. There's no separate company, no shareholders, no board. Your business assets are your assets and your business debts are your debts. Tax-wise, this means:
- One tax return, not two — Business income and personal income lodged together as your individual return
- Same tax brackets as employees — 0%, 16%, 30%, 37%, 45% (FY2025–26)
- No payroll tax for yourself — You don't pay yourself a wage, you draw profits
- You're personally liable — No corporate veil between you and creditors
Sole-trader tax is simple to understand but unforgiving on cash flow if you don't plan for the GST and PAYG cycles.
Step 1 — Get an ABN (free, ~10 minutes)
Apply at abr.gov.au. The ABN is your Australian Business Number — it identifies your business to clients, the ATO, and Services Australia. Without it, clients must withhold 47% of your invoice as no-ABN PAYG, which you eventually reclaim — a cash flow nightmare.
You'll be asked:
- Whether you're an Australian resident for tax (this matters — non-residents have a different ABN process)
- Your business activity (a free-text description)
- Your projected annual turnover
Approval is usually instant. You'll receive your ABN immediately and can start invoicing the same day.
Step 2 — GST threshold: $75,000
You must register for GST when your projected or actual annual turnover hits $75,000. Once registered:
- You add 10% GST to all your invoices
- You can claim back the GST included in your business expenses (input tax credits)
- You lodge a Business Activity Statement (BAS) on the rhythm the ATO sets
Below $75,000, registration is optional. Most small sole traders stay unregistered until they hit the threshold, because adding 10% to your prices can lose you customers if your buyers are individuals (not businesses claiming the GST back themselves).
AusTax AI tip: The $75,000 threshold is on a 12-month rolling basis, not financial year. If at any point you reasonably expect the next 12 months' turnover to exceed $75,000, you must register within 21 days. Late registration triggers backdated GST liability.
Step 3 — BAS rhythm
Once GST-registered, you lodge a Business Activity Statement to report:
- GST collected on sales
- GST paid on purchases
- PAYG installments (your prepayment of income tax)
- Any PAYG withholding (if you have employees)
Default frequency depends on turnover:
| Annual turnover | BAS frequency |
|---|---|
| Under $20 million | Quarterly (default for nearly all sole traders) |
| Over $20 million | Monthly |
| Voluntarily registered (under $75k) | Annually (option) |
Quarterly BAS due dates:
| Quarter | Period | Due date |
|---|---|---|
| Q1 | Jul–Sep | 28 October |
| Q2 | Oct–Dec | 28 February (extra time for the Christmas period) |
| Q3 | Jan–Mar | 28 April |
| Q4 | Apr–Jun | 28 July |
Lodge through ATO online services via myGov, or through a registered BAS/tax agent (which gets you a 4-week extension).
Step 4 — PAYG installments
In your second year (and onwards), the ATO will likely enrol you in PAYG installments — you pre-pay income tax in quarterly chunks based on your previous return.
How it works:
Why this exists: the ATO doesn't want you to land a $25,000 tax bill in October with no money set aside. Quarterly installments smooth the pain. You can vary the installment rate if your business changes — but penalty interest applies if you significantly underpay.
Step 5 — Lodge your individual tax return
A sole trader doesn't file a separate "business tax return." Your business numbers go onto a business income schedule within your standard individual tax return. The flow:
Lodgement deadline: 31 October 2026 for FY2025–26 (or later via a registered tax agent).
Worked example: freelance graphic designer, FY2025–26
Liam runs his own design studio as a sole trader. He's GST-registered (turnover $90k, above threshold).
| Item | Amount |
|---|---|
| Gross income (excl. GST) | $90,000 |
| Less: software subscriptions | ($2,400) |
| Less: home office occupancy | ($3,800) |
| Less: vehicle expenses (88c/km × 3,200km) | ($2,816) |
| Less: equipment depreciation | ($1,500) |
| Less: phone/internet (60% work) | ($720) |
| Less: super contribution (deductible) | ($10,000) |
| Net business profit (taxable) | $68,764 |
| Tax on $68,764 (resident, with LITO) | ~$11,417 |
| Medicare Levy (2%) | $1,375 |
| Total tax owed | $12,792 |
| Less: PAYG installments paid | ($12,000) |
| Balance owing at lodgement | $792 |
Liam's home office occupancy claim is significant — sole traders running a business from home can claim a percentage of mortgage interest (or rent), council rates, insurance and utilities based on the floor area used exclusively for the business.
Deductions specific to sole traders
| Category | What you can claim |
|---|---|
| Home office occupancy | % of rent/mortgage interest, council rates, insurance, utilities (sole traders only — employees can't claim this) |
| Vehicle | 88c/km up to 5,000 km (cents-per-km method) OR full logbook method for higher claims |
| Equipment | Items under $300 fully deductible; items over $300 depreciated over effective life (e.g. computer 3 years) |
| Subscriptions & memberships | Industry associations, professional memberships, journal subscriptions |
| Advertising & marketing | Google Ads, Facebook Ads, business cards, website hosting |
| Subcontractor payments | Payments to other contractors (you may need to lodge a Taxable Payments Annual Report) |
| Professional fees | Accountant, BAS agent, legal advice |
Super for self-employed: the under-used deduction
Unlike an employee, no employer pays super for you. But you can voluntarily contribute to your own super fund and claim it as a tax deduction up to the concessional cap of $30,000 (FY2025–26).
Liam contributed $10,000 to super in our example. That's $10,000 reducing his taxable income. At a marginal rate of around 30–37%, that's roughly $3,000 to $3,700 in tax saved — and the money is in his super account compounding tax-free at 15%.
To claim the deduction, you must lodge a Notice of Intent to Claim with your super fund before lodging your tax return.
AusTax AI tip: The concessional cap is shared with any super your other employers might pay (if you also work as an employee). Total contributions across all sources from all employers must stay under $30,000, or excess goes back into your taxable income at marginal rates.
Instant asset write-off — verify the current rules
For FY2024–25, sole traders could fully deduct depreciable assets costing under $20,000 in the year of purchase (instead of depreciating over years). For FY2025–26, the instant asset write-off rules are subject to legislation that may be amended; check the ATO website at the time you make any significant equipment purchase to confirm the threshold currently in force. Don't assume — the figure has changed multiple times in recent years.
For purchases above the threshold, depreciate over the asset's effective life:
- Laptops & computers: 3 years
- Office equipment: 4 years
- Vehicles: 8 years (or use the cents-per-km method)
When to switch to a company structure
Sole trader is great for low-medium income and minimal risk. Consider switching to a Pty Ltd company when:
- Income exceeds ~$135,000 consistently — company tax rate is 25% (small business) vs your top marginal rate of 45%
- Liability matters — you want a corporate veil between business creditors and personal assets (house, savings)
- Bringing in a partner or co-founder — sole trader can't share equity
- Selling the business someday — companies are more saleable than sole-trader businesses
The downsides of a company: $300+/year in ASIC fees, separate company tax return (in addition to yours), accountant costs roughly double, and director duties under the Corporations Act. Don't switch prematurely just because you crossed $100k revenue — many sole traders comfortably stay sole-trader-only at $200k+ profits.
Practical checklist for new sole traders
- Apply for ABN at abr.gov.au (free, instant)
- Open a separate business bank account — vital for clean records
- Use accounting software (Xero, MYOB, or Hnry) from day one
- Track every invoice and every receipt
- Set aside 25–30% of every payment in a separate "tax savings" account
- Register for GST when turnover hits $75k (or projected to)
- Lodge BAS quarterly on time (28 Oct / 28 Feb / 28 Apr / 28 Jul)
- In year 2, expect PAYG installment notices and budget accordingly
- Make voluntary super contributions before 30 June and lodge Notice of Intent
- Lodge your individual tax return by 31 October
Sole-trader tax punishes disorganisation but rewards consistency. The key is to treat tax as a continuous monthly habit — bookkeeping, BAS, PAYG — rather than an annual panic. AusTax AI tracks income and expense receipts in real time so when 30 June arrives, your numbers are already ready.
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*Disclaimer: This is general information only and does not constitute personal tax advice. Consult a registered tax agent for advice tailored to your specific situation. Always verify against the latest ATO guidelines at ato.gov.au.*