Sole Trader Tax Rates in Australia (2025–26) and What to Set Aside

Short answer: There’s no separate sole trader tax rate in Australia: your business profit is added to any other income and taxed at ordinary resident rates. For the 2025–26 income year those are nil up to $18,200, then 16% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above that, plus the 2% Medicare levy; from 1 July 2026 the 16% rate falls to 15%. At 2026–27 rates, setting aside 25% of profit covers income tax and the Medicare levy on profit up to $135,000.

The figures below come from the Australian Taxation Office and apply to sole traders who are Australian residents for tax purposes. Foreign residents use a different table. Two income years matter right now. The 2025–26 income year (1 July 2025 – 30 June 2026) is the one your current return covers, due 31 October 2026 if you lodge it yourself. Because that date falls on a Saturday, you have until the next business day. The 2026–27 income year is the one you’re earning in now, so it’s the one to set money aside for. For GST, deadlines and deductions, see sole trader taxes in Australia.

What tax rate does a sole trader pay in Australia?

A sole trader pays individual income tax rates on taxable income: business profit plus any wages, interest or other income, minus deductions. As business.gov.au puts it, sole traders pay tax at the individual rate, not a separate business rate. There’s no separate business return either. Your business income and expenses go on your individual return, in the business and professional items schedule.

Resident tax rates, 2025–26 income year

Taxable income	Tax on this income
$0 – $18,200	Nil
$18,201 – $45,000	16c for each $1 over $18,200
$45,001 – $135,000	$4,288 plus 30c for each $1 over $45,000
$135,001 – $190,000	$31,288 plus 37c for each $1 over $135,000
$190,001 and over	$51,638 plus 45c for each $1 over $190,000

These are marginal rates, and that’s what “progressive” means here. Each rate applies only to the dollars inside its band. Moving from $135,000 to $136,000 puts 37% on that last $1,000, not on everything you earned.

Did the tax rates change on 1 July 2026?

Yes. For the 2026–27 income year the 16% rate drops to 15%, and the thresholds stay the same. Every taxpayer above $18,200 saves up to $268 a year: 1% on the $26,800 between $18,200 and $45,000.

Resident tax rates, 2026–27 income year

Taxable income	Tax on this income
$0 – $18,200	Nil
$18,201 – $45,000	15c for each $1 over $18,200
$45,001 – $135,000	$4,020 plus 30c for each $1 over $45,000
$135,001 – $190,000	$31,020 plus 37c for each $1 over $135,000
$190,001 and over	$51,370 plus 45c for each $1 over $190,000

Neither table includes the Medicare levy.

How does the Medicare levy work for sole traders?

On top of income tax, you pay a Medicare levy of 2% of your taxable income. Nobody withholds it from your invoices, so it has to come out of your own set-aside money.

At low incomes the levy is reduced. For 2025–26, a single person who isn’t entitled to the seniors and pensioners tax offset pays no levy at or below $28,011 of taxable income, and a reduced levy up to $35,013. Above that, it’s the full 2%.

Higher earners without appropriate private hospital cover can also pay the Medicare levy surcharge. For singles in 2025–26 it’s 1% above $101,000, 1.25% above $118,000 and 1.5% above $158,000.

What is the average tax rate on sole trader profit?

Your average rate is total tax divided by taxable income, and it’s always below your top marginal rate. The table below uses 2025–26 rates for a single resident whose only income is business profit. It includes the Medicare levy and the low income tax offset: $700 at taxable income up to $37,500, reducing to nil at $66,667.

Taxable income (2025–26)	Income tax	Low income tax offset	Medicare levy (2%)	Total	Average rate
$45,000	$4,288	−$325	$900	$4,863	10.8%
$60,000	$8,788	−$100	$1,200	$9,888	16.5%
$90,000	$17,788	—	$1,800	$19,588	21.8%
$150,000	$36,838	—	$3,000	$39,838	26.6%
$200,000	$56,138	—	$4,000	$60,138	30.1%

These totals come before the small business income tax offset (below), so a sole trader’s actual bill is usually a little lower. A profit of $90,000 costs about 22% in tax, not the 30% marginal rate people often quote.

Which tax offsets reduce a sole trader’s tax?

Two offsets apply automatically when you lodge: you don’t apply for either.

• Low income tax offset (2025–26): up to $700, reducing by 5c per $1 between $37,500 and $45,000 and by 1.5c per $1 from $45,000 to nil at $66,667. It can reduce your tax to nil, but not below.
• Small business income tax offset: 16% of the tax on your net small business income, capped at $1,000 a year. It’s available where your business’s aggregated turnover is under $5 million. The ATO works it out from the share of your taxable income that comes from the business.

Both come off the bill at the end, so the set-aside figures below leave them out as a buffer.

What is the top tax rate in Australia?

The top rate is 45%, on taxable income over $190,000, in both 2025–26 and 2026–27. Add the 2% Medicare levy and the top marginal rate is 47%. Only the dollars above $190,000 are taxed at that rate. On $200,000 of profit the average rate is about 30%, as the table above shows.

The same 47% figure applies elsewhere. If you don’t quote an ABN and a client pays you more than $75 excluding GST for goods or services, they generally have to withhold the top rate of tax of 47% and send it to the ATO.

How much should a sole trader set aside for tax?

Set aside the average rate for your expected profit, using 2026–27 rates, because that’s the year you’re earning in.

Expected profit (2026–27)	Income tax	Medicare levy (2%)	Total	Share of profit
$45,000	$4,020	$900	$4,920	10.9%
$60,000	$8,520	$1,200	$9,720	16.2%
$90,000	$17,520	$1,800	$19,320	21.5%
$120,000	$26,520	$2,400	$28,920	24.1%
$150,000	$36,570	$3,000	$39,570	26.4%
$200,000	$55,870	$4,000	$59,870	29.9%

In practice:

1. Take GST out first. If you’re registered for GST, one-eleventh of every GST-inclusive payment isn’t yours. How to calculate GST shows the maths, and it goes on your BAS, not your income tax.
2. Set aside a fixed share of what’s left after expenses. A painter expecting $90,000 of profit puts aside about 21.5%, which is $19,320 for the year or roughly $1,610 a month.
3. Use your marginal rate for side income. If you earn a $70,000 salary and make $15,000 profit on the side, every one of those profit dollars falls in the 30% band. Set aside 32c per dollar (30% plus the 2% levy), so $4,800. Your employer’s withholding only covers the salary.
4. Keep it out of reach. The ATO’s BAS and GST tips suggest a separate bank account for tax money.

The trap is timing. In your first year nobody collects tax during the year, so the whole bill arrives after you lodge. After that, the ATO puts you into PAYG instalments once your latest return shows instalment income of $4,000 or more, tax payable of $1,000 or more and notional tax of $500 or more. In year two you can be paying last year’s bill and this year’s instalments at the same time. Instalments are prepayments that come out of your set-aside account; they aren’t an extra tax.

Is a sole trader taxed like a company?

No. The company tax rates, 25% for base rate entities and 30% for other companies in 2025–26, apply only to companies. A sole trader isn’t a separate taxpayer. The profit is your personal income, even if you pay yourself a regular “wage” from it. Moving to a company changes far more than the rate, so get advice before doing it. Deductions lower the income these rates apply to, so keep every receipt: see expenses and receipts for sole traders and working from home deductions.

What records set your tax bill, and where does Keel fit?

Your tax rate is fixed by law, but your taxable income depends on the records you keep: every invoice that counts as income and every receipt that supports a deduction.

Keel: Invoice Maker & Receipts, by Ilura Technology OÜ, is an iPhone app for those records. You write estimates, and an accepted estimate becomes the invoice in one tap. Each invoice is a PDF, and receipts and expenses are filed under their job. You can log business mileage, and a “who owes you” list drafts reminders that you review and send yourself. Records stay on your iPhone: there’s no account, no bank connection and no cloud sync, and the App Store privacy label reads “Data Not Collected”.

Keel doesn’t calculate the tax you owe, lodge returns or connect to the ATO. It’s free with no invoice limit, and free invoices carry a small “Made with Keel” footer. Keel Lifetime is a one-time purchase ($249.99 USD; the App Store shows your local price) that adds custom branding, a signature, premium templates and accountant-ready exports and reports. Keel on the App Store. The Australia guides cover GST, BAS and deductions in more depth.

Frequently asked questions

What is the tax rate for a sole trader in Australia? There isn’t a separate one. Sole traders pay ordinary resident rates on taxable income. For 2025–26 that’s nil to $18,200, 16% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above, plus the 2% Medicare levy. From 1 July 2026 the 16% rate becomes 15%, and the other rates and thresholds are unchanged.

How much tax does a sole trader pay on $100,000 profit? At 2025–26 rates, income tax on $100,000 of taxable income is $20,788, and the Medicare levy adds $2,000, so the total is $22,788, about 22.8%. At 2026–27 rates the total is $22,520. Both figures come before the small business income tax offset, which can take up to $1,000 more off. They assume you have no other income.

What percentage should a sole trader put aside for tax? Use the average rate for your expected profit at 2026–27 rates: about 16% at $60,000, 21.5% at $90,000 and 25% at $135,000, including the Medicare levy. Set GST aside separately if you’re registered. If the business is a side income on top of a salary, set aside your marginal rate plus 2%, usually 32c in the dollar.

Do sole traders pay the Medicare levy? Yes. The Medicare levy is 2% of taxable income for most residents, and it’s charged on top of income tax when you lodge your return. For 2025–26, a single person with no seniors offset pays no levy at or below $28,011 and a reduced levy up to $35,013. You may also pay the Medicare levy surcharge if you earn more and don’t have private hospital cover.

Do sole traders get the $18,200 tax-free threshold? Yes, if you’re an Australian resident for tax purposes. The first $18,200 of taxable income is taxed at nil, but it applies once to your total income, not separately to the business. If you also have a job, your employer usually applies the threshold to your wages, so every dollar of business profit is taxed from your marginal rate upwards.

Is the company tax rate lower than the sole trader tax rate? The 2025–26 company rates are 25% for base rate entities and 30% for other companies, but they apply only to companies. A sole trader can’t use them. A company is a separate legal entity with its own return, costs and rules about taking money out, so comparing headline rates is misleading. Get advice before you restructure.

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This article is general information, not tax advice. Consult a qualified Australian tax professional.