What a Sole Trader Actually Owes, and When
Working for yourself in Australia does not change your tax rates, a sole trader pays the same individual rates as an employee. What changes is that nobody withholds anything on your behalf. The money arrives whole, and the obligations arrive later, which is the entire difficulty.
There are three separate liabilities, each on its own timetable, and confusing them is how freelancers end up with a bill they have already spent.
1. Income tax on your profit, not your revenue
You are taxed on what is left after deductible business expenses, not on what you invoiced. The rates are the ordinary individual ones:
| Taxable income | Rate on the amount in this band |
|---|---|
| Up to $18,200 | Nil, the tax-free threshold |
| $18,201 – $45,000 | 15% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| Above $190,000 | 45% |
2. Medicare levy at 2%
Charged on top of income tax, on your taxable income. It is easy to leave out of a mental estimate and it applies from a relatively low income.
3. GST, but only above $75,000
Registration is compulsory once turnover reaches $75,000. Below that it is optional, and the calculator says so rather than assuming it, because voluntary registration lets you claim GST credits on business expenses, which can be worth it if your costs are substantial.
GST is not your money at any point. You collect 10% on behalf of the ATO and remit it, less the GST you paid on business purchases, through your Business Activity Statement. Treating collected GST as revenue is the single most common cash-flow mistake in freelancing.
The Rhythm of the Year
The Australian tax year runs 1 July to 30 June, which is why years are written 2025-26 and 2026-27 rather than as calendar years. Two things follow from that.
BAS lodgement is usually quarterly, so GST leaves your account four times a year in amounts that reflect the previous three months of invoicing rather than the current month's cash position. And income tax is settled after the year ends, which for a first-year sole trader means the first bill can cover twelve months of earnings at once.
After that first assessment the ATO generally moves you onto PAYG instalments, quarterly prepayments against the coming year's liability, based on what you earned last year. The transition year is the awkward one, since you can be settling last year and prepaying this year in the same quarter.
Setting Money Aside
The practical response is to separate the money as it arrives rather than as it falls due. A common approach is a second account holding roughly 30% of every payment for income tax and the Medicare levy, plus the full 10% of any GST collected, which is not yours in the first place.
Thirty per cent is a starting point, not a rule. Someone earning $60,000 in profit owes considerably less proportionally than someone earning $150,000, because the bands are progressive. Running your actual numbers is worth more than a rule of thumb, which is what the calculator is for.
Super Is Optional, Which Is the Problem
An employee receives compulsory superannuation contributions from their employer. A sole trader receives none, and nothing happens if you contribute nothing, the consequence simply arrives decades later. Voluntary contributions are generally deductible up to the concessional cap, so they reduce this year's tax bill while building the balance an employee gets automatically.
This page is general information rather than tax advice. Deductions, the treatment of home-office and vehicle costs, and personal services income rules all depend on circumstances the calculator cannot see. The ATO's own guidance or a registered tax agent is the right source before you act on a figure.