Sole Trader Tax Rates in Australia (2026): Brackets, Offsets, Medicare Levy and Worked Examples

A sole trader doesn't have a business tax rate. The ATO adds your business profit to any wages, interest or rent you earn and taxes the total at the ordinary individual rates, then takes off the offsets you qualify for and adds the Medicare levy. This guide is for people who trade under their own ABN — tradies, consultants, market stallholders, rideshare drivers, freelancers — and want to know what they'll actually pay for the 2026–27 income year. It sets out the brackets after the latest cut, how the small business offset and Medicare levy work, what PAYG instalments are, and four worked examples in Australian dollars.

Quick answer

For 2026–27, a resident sole trader pays nil on the first A$18,200, then 15% to A$45,000, 30% to A$135,000, 37% to A$190,000 and 45% above that, plus the 2% Medicare levy. The small business income tax offset then cuts up to A$1,000 off the tax on business profit.

• Business profit and other income are taxed together on one individual return

• Small business income tax offset: 16% of the tax on business income, up to A$1,000, turnover under A$5 million

• The 15% bracket drops to 14% from 1 July 2027 — already law

• Expect PAYG instalments once your business income is established

• No super guarantee for yourself, but personal contributions can be deducted

Sole trader tax rates for 2026–27

The rates below come from the ATO's resident tax rate table for 2026–27, the income year running from 1 July 2026 to 30 June 2027. They apply to your taxable income — total assessable income (business profit, wages, interest, rent, capital gains) less your deductions. Your business profit is gross receipts excluding GST, less the business expenses you can claim.

These figures don't include the Medicare levy. They are progressive marginal rates, which trips up a lot of new sole traders: moving into the 30% bracket doesn't make your whole income taxed at 30%. Only the dollars inside each band are taxed at that band's rate. Someone with A$50,000 of taxable income pays 15 cents on each dollar between A$18,201 and A$45,000, and 30 cents only on the last A$5,000.

The practical number to remember is your marginal rate — what the next dollar of profit costs you. For most sole traders earning between A$45,000 and A$135,000, it's 30% plus the 2% levy, so 32 cents of each extra dollar of profit goes to tax. That's also the value of an extra dollar of deductible expense: a A$1,000 tool you can deduct saves about A$320 of tax at that income.

Because there's no separate business return, there's also no separate business rate. Sole traders report business income and expenses in the business and professional items section of their individual return, using their own tax file number. Lodging yourself, the return is normally due by 31 October after the year ends; registered tax agents have later lodgment programs for their clients.

How the tax cuts changed the brackets

Sole traders have had three changes to the individual scale in three years, and many online calculators still lag behind. Stage 3, from 1 July 2024, cut the 19% rate to 16%, cut 32.5% to 30%, and lifted the top of the 30% band from A$120,000 to A$135,000 and the start of the 45% band from A$180,000 to A$190,000. Those brackets applied for 2024–25 and 2025–26.

From 1 July 2026, the 16% rate became 15%. That's why the tax on the first A$45,000 dropped from A$4,288 to A$4,020, and every base amount above it fell by A$268. From 1 July 2027 the same band falls again, to 14%. The ATO confirms both steps are law. A sole trader with taxable income above A$45,000 saves A$268 in 2026–27 compared with 2025–26, and a further A$268 from 2027–28.

Sole trader tax at a glance (2026)

A$18,200

Tax-free threshold

Residents only

15%

Rate from A$18,201

14% from 1 July 2027

2%

Medicare levy

On top of income tax

A$1,000

Max small business offset

Turnover under A$5 million

Two more changes arrived with the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which followed the May 2026 Budget. The first is a A$1,000 standard deduction for work-related expenses from 2026–27. It's built for employees: the ATO says it doesn't apply to people who earn only business or investment income, and your business expenses are claimed in the business section as usual. A sole trader who also has a wage job may be able to use it for the job, but not to replace business deductions. The second is the A$250 Working Australians Tax Offset from 2027–28, which the Budget papers say covers income from work, including sole traders' business income.

The Medicare levy for sole traders

Resident sole traders pay the 2% Medicare levy on their whole taxable income, the same as employees. It isn't withheld by anyone, so it's part of the bill you settle when your return is assessed, or through PAYG instalments during the year. On A$80,000 of taxable income the levy is A$1,600.

Low-income earners get a reduction. For 2025–26 (the latest year the ATO has published), a single person with no dependants pays no levy if taxable income is at or below A$28,011. Between that figure and A$35,013 the levy is phased in at 10 cents for each dollar above the lower threshold, which is why someone on A$30,000 pays about A$199 rather than the full A$600. Family thresholds are higher and rise with each dependent child. The 2026–27 thresholds are usually announced in the following Budget, so check the ATO page before you lodge.

Two other levy rules catch sole traders. The Medicare levy surcharge is a separate charge of 1% to 1.5% for higher earners without appropriate private hospital cover; it's based on income for surcharge purposes, which adds back items such as reportable super contributions. And foreign residents don't pay the Medicare levy at all — but they lose the tax-free threshold, as explained below.

The small business income tax offset

The small business income tax offset (sometimes called the unincorporated small business tax discount) is the one tax break built specifically for sole traders, partners and trust beneficiaries running small businesses. You're eligible if you carry on a business as a sole trader, or receive a share of net small business income from a partnership or trust, and the business's aggregated turnover is under A$5 million.

The offset equals 16% of the part of your basic income tax liability that relates to your net small business income, capped at A$1,000 a year. In formula terms: offset = 16% × income tax on your taxable income × (net small business income ÷ taxable income). Basic income tax liability means tax at the ordinary rates before offsets, and it doesn't include the Medicare levy. If your net small business income is equal to or more than your taxable income — for example, when the business is your only income — the ATO simply applies 16% to your whole basic tax.

Net small business income is your business's assessable income less the deductions that relate to it. If the result is a loss it's treated as zero, so a loss year gets no offset. If you run two sole trader businesses, combine them first; if either made a loss, apply the non-commercial loss rules before you combine.

In practice, the A$1,000 cap is reached once the tax attributable to business income passes A$6,250. With 2026–27 rates, a sole trader whose only income is business profit hits the cap at roughly A$54,000 of taxable income. Below that, the offset is smaller. You don't claim it with a separate form: the ATO calculates it from the business income you report, and it appears on your notice of assessment. The ATO's myTax calculator only helps you work out the income figures to enter; it doesn't calculate the offset itself.

The low income tax offset can apply too. It's A$700 for taxable income up to A$37,500, reducing by 5 cents per dollar to A$325 at A$45,000, then by 1.5 cents per dollar until it disappears at A$66,667. Both offsets are non-refundable: they can cut your income tax to zero but don't create a refund on their own, and they don't reduce the Medicare levy.

Worked examples for 2026–27

All four examples assume an Australian resident with no dependants, no private health insurance issues and no other offsets. Business figures are net profit after deductions and exclude GST.

What four sole traders pay in 2026–27

	Mia — designer	Priya — side business	Tom — electrician	Jack — consultant
Business profit	A$60,000	A$15,000	A$100,000	A$220,000
Other income	—	A$40,000 wages	A$20,000 wages	—
Taxable income	A$60,000	A$55,000	A$120,000	A$220,000
Income tax at 2026–27 rates	A$8,520	A$7,020	A$26,520	A$64,870
Low income tax offset	− A$100	− A$175	—	—
Small business offset	− A$1,000	− A$306	− A$1,000	− A$1,000
Medicare levy (2%)	A$1,200	A$1,100	A$2,400	A$4,400
Total	A$8,620	A$7,639	A$27,920	A$68,270

Business profit

Mia — designer

A$60,000

Priya — side business

A$15,000

Tom — electrician

A$100,000

Jack — consultant

A$220,000

Other income

Mia — designer

—

Priya — side business

A$40,000 wages

Tom — electrician

A$20,000 wages

Jack — consultant

—

Taxable income

Mia — designer

A$60,000

Priya — side business

A$55,000

Tom — electrician

A$120,000

Jack — consultant

A$220,000

Income tax at 2026–27 rates

Mia — designer

A$8,520

Priya — side business

A$7,020

Tom — electrician

A$26,520

Jack — consultant

A$64,870

Low income tax offset

Mia — designer

− A$100

Priya — side business

− A$175

Tom — electrician

—

Jack — consultant

—

Small business offset

Mia — designer

− A$1,000

Priya — side business

− A$306

Tom — electrician

− A$1,000

Jack — consultant

− A$1,000

Medicare levy (2%)

Mia — designer

A$1,200

Priya — side business

A$1,100

Tom — electrician

A$2,400

Jack — consultant

A$4,400

Total

Mia — designer

A$8,620

Priya — side business

A$7,639

Tom — electrician

A$27,920

Jack — consultant

A$68,270

Mia earns A$60,000 profit as a freelance designer and has no other income. Tax at the 2026–27 rates is A$4,020 on the first A$45,000 plus 30% of A$15,000 (A$4,500), so A$8,520. Her low income tax offset is A$325 less 1.5% of A$15,000, which leaves A$100. Because all her income is business income, the small business offset is 16% of A$8,520 — A$1,363 — capped at A$1,000. Add A$1,200 Medicare levy and she pays A$8,620, about 14.4% of her profit. In 2025–26, with the 16% bracket, the same profit would have cost A$8,888.

Priya has a A$40,000 salary and a A$15,000 weekend catering business. Her taxable income of A$55,000 attracts A$7,020 in tax. Business income is 15,000/55,000 of her taxable income, so the tax relating to it is about A$1,915, and 16% of that is A$306. Her low income tax offset is A$175 and her levy A$1,100, for a total of A$7,639. Her employer has already withheld tax from her wages, so most of that is covered; the balance is what the side business adds, and it's why she should set aside about a third of each catering payment.

Tom, an electrician, made A$100,000 profit and earned A$20,000 from casual TAFE teaching. His A$120,000 taxable income attracts A$26,520. The tax relating to his business income is five-sixths of that, about A$22,100, and 16% of it is far above the cap, so he gets A$1,000. With the A$2,400 levy he pays A$27,920. Every additional dollar of profit he makes costs him 32 cents.

Jack is a consultant with A$220,000 profit. The tax is A$51,370 plus 45% of A$30,000, so A$64,870. After the A$1,000 offset and A$4,400 levy he pays A$68,270, about 31% of profit, and each extra dollar costs him 47 cents. At this level the comparison with the 25% company rate becomes worth doing, which we come back to below.

PAYG instalments: paying as you go

Employees have tax withheld from every pay. Sole traders don't, so once your business is established the ATO asks you to prepay through PAYG instalments. Each instalment is a credit against your final tax bill; when you lodge, the ATO compares the total paid with your assessment and either refunds the difference or sends you a bill for the balance.

The ATO enters individuals into the system automatically once their latest return shows instalment income (gross business and investment income) of A$4,000 or more, tax payable of at least A$1,000 and notional tax of A$500 or more, subject to a few other conditions. You can also opt in voluntarily in your first year to avoid a large bill. Most sole traders pay quarterly, due on 28 October, 28 February, 28 April and 28 July, usually on the same activity statement as their GST.

A sole trader's tax year (2026–27)

1 July 2026

Income year starts — 15% bracket applies

28 October 2026

Q1 PAYG instalment and BAS due (if lodging yourself)

28 February 2027

Q2 instalment due

28 April 2027

Q3 instalment due

30 June 2027

Year ends — make super contributions and notices of intent in time

28 July 2027

Q4 instalment due

31 October 2027

Individual return due if you lodge yourself

You'll be offered two ways to pay. Under the instalment amount option the ATO tells you a fixed amount each quarter, based on your last assessed tax uplifted by the GDP adjustment — 5% for 2026–27. If Mia's 2025–26 assessment was A$8,888, her quarterly amount would be in the order of A$2,300. Under the instalment rate option you multiply each quarter's instalment income by a rate the ATO gives you: a rate of 12% on A$18,000 of gross sales for the quarter means a A$2,160 instalment. The rate option tracks your actual takings, which suits seasonal businesses.

If you expect a much lower tax bill this year, you can vary the amount or rate. Be careful: if your varied instalments end up below 85% of the benchmark tax, the ATO can charge general interest on the shortfall. Our PAYG instalments guide covers variations and labels in detail. From 1 July 2027 the government plans to let small businesses opt in to monthly instalments calculated by ATO-approved accounting software; that part isn't law yet.

Other things that change a sole trader's tax bill

Business deductions. Everything that reduces profit reduces tax at your marginal rate: stock, materials, rent, vehicle running costs for business trips, phone and internet business use, insurance, accounting fees, depreciation. Small businesses with aggregated turnover under A$10 million can write off eligible assets costing under A$20,000 immediately, a concession the government has now made permanent. Private spending and money you take out of the business ("drawings") are never deductible.

Personal super contributions. Sole traders aren't required to pay the super guarantee for themselves, but contributions you make to your own fund can usually be claimed as a deduction. You must give your fund a notice of intent to claim and get its acknowledgment before you lodge your return (and before you withdraw or roll over the money). Deductible contributions count toward the A$32,500 concessional cap and are taxed at 15% in the fund. For Tom, contributing A$10,000 would save about A$3,200 in personal tax for A$1,500 of contributions tax.

Non-commercial losses. If your business makes a loss, you can only offset it against wages and other income in the same year if your income for those purposes is under A$250,000 and you pass one of four tests — for example, business assessable income of at least A$20,000, or profits in three of the past five years. Otherwise the loss is deferred until the business makes a profit. Hobby-style side businesses run into this often.

Personal services income. If most of your income comes from your own skills or effort — consultants, IT contractors, many trades on labour-only contracts — the personal services income rules may limit the deductions you can claim. Getting 80% or more of that income from one client is a red flag, unless you pass the results test or get a determination. The rules don't change your tax rate, but they stop you claiming things like rent paid to your spouse.

GST is separate. If your turnover reaches A$75,000 you must register for GST, charge 10% on most sales and pass it to the ATO. GST isn't income tax: your profit for income tax is calculated on GST-exclusive figures, and the GST you collect is never "yours". Our Australia GST calculator splits GST out of a price.

Foreign residents and other special cases

If you're a foreign resident for tax purposes, the tax-free threshold doesn't apply. For 2025–26, foreign residents paid 30% from the first dollar up to A$135,000, then 37% and 45% on the same thresholds as residents; check the ATO's foreign resident table for 2026–27 before you lodge. Foreign residents don't pay the Medicare levy. Someone who becomes or stops being a resident part-way through the year gets a pro-rated tax-free threshold.

Working holiday makers on 417 and 462 visas have their own scale, starting at 15% from the first dollar, and the small business offset still applies if they genuinely run a business. Children under 18 who run a genuine business — mowing, tutoring, online sales — are taxed on that business income at ordinary adult rates, because the special minors' rates only apply to unearned income such as trust distributions and interest.

Age matters for one more reason: people who have reached age pension age may qualify for the seniors and pensioners tax offset, whose thresholds were adjusted from 2026–27 to reflect the tax cuts. Retirees who keep consulting as sole traders should check whether it applies.

Common mistakes and how to fix them

The most common problem isn't the rate — it's cash flow. New sole traders spend their gross receipts and get an assessment for the first year's tax and the first PAYG instalment at about the same time. A simple rule protects you: move 25–30% of every payment into a separate tax account (more if you're above A$135,000), and the GST portion as well if you're registered.

Before you lodge your sole trader return

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• Report gross business income excluding GST, and every deduction against it
• Check net small business income is reported so the ATO can apply the small business offset
• Lodge any notice of intent for personal super contributions and get the fund's acknowledgment
• Apply the non-commercial loss tests before using a business loss against wages
• Include all PAYG instalments paid during the year so they're credited
• Check personal services income rules if most income came from your own work
• Keep records for five years from lodgment

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Other mistakes we see: claiming the A$1,000 standard deduction against business expenses (it doesn't work that way); using an online calculator still loaded with 2025–26 rates; assuming the business pays tax at a flat rate; forgetting that capital gains on business assets and interest on business savings are added to taxable income; and mixing private and business spending in one account, which makes it hard to prove deductions if the ATO reviews you. If you've under-reported in an earlier year, lodging an amendment voluntarily before the ATO contacts you usually reduces penalties.

When the rates point to a different structure

Sole trader rates are low at modest profits — Mia pays about 14% — and rise steeply once profit passes A$135,000. A company that's a base rate entity pays 25% on profit it keeps, but profit paid out to you as dividends is taxed again at your rates with a credit for company tax, and a company costs A$636 to register plus A$342 a year in ASIC fees, an extra tax return and director duties. Our business structures guide compares sole traders, partnerships, companies and trusts side by side with A$ examples, and the company tax rate guide explains the 25% and 30% rates.

If you haven't set up yet, start with an ABN — it's free through the ABN registration process — and read our sole trader guide for the full set-up steps. If you're weighing an ABN against registering a company, ABN vs ACN explains the difference.

Official links

• ATO — Tax rates for Australian residentsCurrent and past brackets
• ATO — Small business income tax offsetEligibility and calculation
• ATO — Medicare levy reduction for low-income earnersThresholds
• ATO — PAYG instalmentsEntry, options and variations
• ATO — New tax cuts for every Australian taxpayer15% from 2026, 14% from 2027

Next steps

Work out your expected profit for the year, run it through the brackets above, take off the small business offset and add the levy — that's your tax-set-aside target. Then check your PAYG instalment notice against it. To tighten the profit figure, our profit margin calculator shows what each sale really contributes after costs.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What tax rate does a sole trader pay in Australia in 2026?

Sole traders pay the individual resident rates on their whole taxable income, business profit included. For 2026–27 the first A$18,200 is tax-free, then 15% to A$45,000, 30% to A$135,000, 37% to A$190,000 and 45% above that. Most people also pay the 2% Medicare levy. There's no separate business tax rate.

How much tax does a sole trader pay on A$60,000 profit?

On A$60,000 of taxable income in 2026–27, income tax is A$8,520. A sole trader whose whole income is business profit gets the maximum A$1,000 small business income tax offset and a A$100 low income tax offset, then pays A$1,200 Medicare levy. The total is about A$8,620, or roughly 14.4% of profit, before any personal super deduction.

Do sole traders get the small business income tax offset?

Yes, if the business has aggregated turnover under A$5 million. The offset is 16% of the income tax on your net small business income, capped at A$1,000 a year. The ATO works it out from your return; you only need to report net small business income correctly. A business loss means no offset that year.

Do sole traders pay the Medicare levy?

Yes. Resident sole traders pay the 2% Medicare levy on taxable income, just like employees. If your taxable income is low you may pay a reduced amount or none: for 2025–26 a single person pays nothing at or below A$28,011, with the levy phased in up to A$35,013. Foreign residents don't pay it.

When do sole traders have to start PAYG instalments?

The ATO puts individuals into PAYG instalments automatically after a return shows business and investment income of A$4,000 or more, tax payable of at least A$1,000 and notional tax of A$500 or more, among other conditions. Instalments are usually paid quarterly with your activity statement, and they are credited against your tax when you lodge your return.

Will the 14% tax rate apply to sole traders?

Yes. The law already cuts the 18,201–45,000 bracket to 14% from 1 July 2027, after it fell from 16% to 15% on 1 July 2026. Sole traders also qualify for the A$250 Working Australians Tax Offset from 2027–28, because the offset covers business income from work, not only wages.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Tax rates – Australian resident — Australian Taxation Office · accessed 11 October 2026
2. 2.Personal income tax – new tax cuts for every Australian taxpayer — Australian Taxation Office · accessed 11 October 2026
3. 3.Small business income tax offset — Australian Taxation Office · accessed 11 October 2026
4. 4.Low and middle income earner tax offsets — Australian Taxation Office · accessed 11 October 2026
5. 5.Medicare levy reduction for low-income earners — Australian Taxation Office · accessed 11 October 2026
6. 6.Tax rates – foreign resident — Australian Taxation Office · accessed 11 October 2026
7. 7.Standard deduction for work-related expenses — Australian Taxation Office · accessed 11 October 2026
8. 8.Budget Paper No. 2 2026–27 — Receipt measures — Australian Government (budget.gov.au) · accessed 11 October 2026
9. 9.Income Tax Rates Act 1986 — compilation from 1 July 2026 — Federal Register of Legislation · accessed 11 October 2026
10. 10.Business structures – key tax obligations — Australian Taxation Office · accessed 11 October 2026