How is sole trader tax calculated in Australia?

A sole trader's business profit is taxed at the same resident individual rates as wages. The first portion is tax-free (the tax-free threshold), then income is taxed in progressive brackets. There is no separate company rate — the ABN income simply forms part of your personal taxable income.

What is the Medicare levy?

The Medicare levy is generally 2% of taxable income, funding the public health system. Low-income earners pay a reduced levy or none at all below the lower threshold, phasing in over a shading range. This tool applies the standard 2% above the threshold.

The Low Income Tax Offset reduces the tax payable for lower earners. It is a maximum offset that tapers away as income rises, cutting out entirely at a higher income. Because it is a non-refundable offset, it can reduce your tax to zero but not below it, which the calculator respects.

What are PAYG instalments?

Once your business income reaches a certain level, the ATO asks you to pre-pay your expected tax in quarterly PAYG instalments rather than one annual lump sum. The tool estimates a quarterly instalment as roughly a quarter of your annual income tax so you can budget for it.

It is a close estimate using standard resident brackets, the 2% Medicare levy and LITO. It does not handle the Medicare levy surcharge, HELP/HECS repayments, private health rebates, or non-resident rates. Use it for planning and confirm with your tax agent or myTax.

Australia Sole Trader Tax Calculator

The Australia Sole Trader Tax Calculator estimates the income tax an ABN holder owes on their net business income, using the ATO resident brackets, the 2% Medicare levy, and the Low Income Tax Offset (LITO). Because a sole trader’s profit is taxed as personal income, the same brackets that apply to wages apply to your business — there is no separate company rate.

How it works

Your net business income (income minus deductible expenses) is your taxable income. It is taxed in progressive resident brackets, the first slice being tax-free:

$0 – $18,200      nil
$18,201 – $45,000  19%
$45,001 – $120,000 32.5%
$120,001 – $180,000 37%
$180,001+          45%

On top of the income tax, the Medicare levy adds 2% of taxable income above the low-income threshold. The LITO then reduces the result: a maximum offset that tapers away as income rises, capable of cutting tax to zero but not below. Finally, the PAYG instalment estimate is roughly a quarter of the annual income tax, reflecting how the ATO collects it through the year.

Example and notes

A sole trader with $80,000 net income pays nil on the first $18,200, 19% on the next $26,800 (= $5,092), and 32.5% on the remaining $35,000 (= $11,375) — about $16,467 income tax. The Medicare levy adds $80,000 × 2% = $1,600. The LITO has fully tapered out at this income, so it does not reduce the bill. A PAYG instalment is roughly $16,467 ÷ 4 ≈ $4,117 per quarter.

Notes: this uses standard resident brackets and ignores the Medicare levy surcharge, HELP debts and the LMITO (now ended). It is a planning estimate, not your myTax assessment.