Sole Trader Tax Rate: This Is How Much You'll Pay in 2024

When it comes to paying taxes as a sole trader, it’s likely you’ll be asking yourself:

• What sole trader tax rate you should be paying
• How to make sure you don’t overpay in taxes and lose out
• How to make sure you don’t underpay and incur a fine
• How to be sure you’re in the right tax bracket

In this article, we cover these questions and a lot more:

1. What are the tax rates for sole traders in Australia?
2. How to calculate your sole trader taxable income
3. How do sole traders pay tax?
4. How do you set up your PAYG?
5. Optimise your taxes as a sole trader with these deductions
6. How to streamline your tax payment prep with Parpera

If you’re looking for a tool that’ll help you manage your taxes and pay on time? Parpera is a money management tool specifically designed for sole traders. You can send and receive payments, create and send invoices and set aside money for taxes, plus more. Sign up for your 30-day free trial now!

What are the tax rates for sole traders in Australia?

Please note that this is not tax advice and all information is from the ATO website. For personalised tax advice speak to an accountant.

Here are the Australian Taxation Office’s (ATO) individuals and sole trader tax rates you need to calculate your tax for 2023-2024: 

The good news is you may have a tax-free threshold of up to $18,200. 

Now let’s look at the essential details you’ll need to figure out your business revenue, so you can calculate how much you’ll owe in taxes more precisely.

How to calculate your sole trader taxable income

Australian sole trader taxable income is the total amount of all your client income minus your tax-deductible business expenses. 

Total revenue - tax deductible business expenses = Taxable income

You’ll use the same tax return and tax rates as would an employee, but the main difference is that you can reduce your taxable income with sole trader tax deductions.

Here’s a sole trader tax calculation example:

If you add up your revenue and it’s a total of $73,000 at the end of the financial year. And you add up your tax-deductible business expenses and get to $8,300, this puts your sole trader taxable income at $64,700. On the first $18,200, you’ll pay no tax, then on your revenue from $18,200 to $45,000, you’ll pay 19% or $5,092 in tax. The remaining $19,700 in taxable sole trader income will be taxed at 32.5% or $6,403. 

That brings your total tax payment to $11,494, not including any additional taxes or offsets.

The ATO’s Income Tax Estimator will make sure you include any of these additional taxes, offsets, or deductions available to you. When you’re ready to complete your tax return at the end of the financial year, use our step-by-step tax return for sole trader guide.

How do sole traders pay tax?

On your first year of trading, you’ll pay your tax at the end of the financial year in July.

Once you’ve lodged your first tax return, you’ll then be required to submit your tax via PAYG every quarter.

Here are the essentials to remember if you’re a sole trader business owner:

• Every financial year, you’ll need to complete an individual tax return. When you’re a sole trader, you’ll also need to add information into the Supplementary Section of your tax return.
• You must declare all your sole trader income for tax purposes, even if you don’t owe any tax.
• As a sole trader, you’re taxed at the same rates as an employee with one big difference: you can deduct many more expenses.
• If you don’t follow the rules for proper tax deductions, you can’t claim them against your taxable income.
• After your first year of trading, you’ll make quarterly pay-as-you-go tax payments (PAYG). If you’re registered for GST, you’ll have to do these quarterly payments through your BAS (Business Activity Statement).

How do you set up your PAYG?

Once you submit your first tax return, you’ll be entered in the ATO’s system and be required to submit and pay for PAYG every quarter. These are tax estimates based on the last three months of your work.

Keep these must-know PAYG details in mind to avoid fines while managing your cash flow:

• With PAYG, you’ll need to make four quarterly PAYG payments per year.
• You can adjust your estimate each quarter if your income changes dramatically.
• If you underestimate your revenue too much, the ATO could penalise you with a fine.

How to make sure you don’t overpay or underpay with PAYG instalments

If you’ve been in business a while, use last year’s tax revenue to estimate this year’s payable instalments. New sole traders can use this year’s revenue minus business expenses to make a best guess for pay-as-you-go tax estimates. 

Here are three ways you can figure out your PAYG estimates for the financial year:

• You can manually sort it out yourself
• Use the ATO’s PAYG instalment calculator
• Get a money management app like Parpera with a tax estimate tool (more on this later)

When calculating your PAYG estimate, remember you can adjust it each quarter if it’s off. 

Even if your payments are higher than your actual earnings, you’ll get reimbursed once you lodge your tax return. You could get hit with penalties if you underpay your tax payments, so it’s better to estimate higher than lower.

Here’s a PAYG tax estimate calculation example:

Let’s say you’re six months into your second year as a sole trader. You have an average of $3,700 in client payments each month, so you estimate your yearly business income at $44,400 ($3,700 x 12 months). Since you’re not 100% sure of all your deductible expenses and don’t want to underestimate your PAYG instalments, you deduct $200 per month as expenses for a total of $2,400 of annual deductions. 

Your taxable sole trader income estimate is $42,000, giving you a total tax payment of $4522. You can set aside $1,131 per quarter or $95 each week in a savings account to ensure you’ve got enough for your estimated tax payments.

PAYG sole trader tax payment deadlines

If you pay electronically, you’ll receive email notices about your payment due dates. As a rule, each instalment is due 28 days after the quarter ends.

Make sure to set money aside each month, so you’re ready when it’s time to pay. Here are a few ways to do it:

• Calculate how much you need to set aside from each client invoice or each week manually.
• Hire a registered tax agent or accountant to do it for you.
• Use a money management tool like Parpera to help you keep track of your quarterly business revenue and expenses

Do you need a Business Activity Statement (BAS) for PAYG instalments?

According to the ATO, if your sole trader business revenue is less than $75,000 per year, you won’t receive a BAS unless you’ve registered for the Goods and Services Tax (GST). In this case, you’ll receive instalment notices for your PAYG payments each quarter. In essence, you only need to worry about a BAS statement if you’re registered for GST.

To make a PAYG payment, log into your MYGOV account and send in your payment electronically using BPAY®, debit card, or credit card. To change your PAYG estimate, you need to lodge your instalment notice.

When should you register for the Goods and Services Tax (GST)?

As a sole trader, you can register for GST at any time, but it’s not required for most businesses until you earn more than $75,000 per year. You must keep check of your revenue, and register 21 days before you pass the $75,000 threshold.

Immediately add the 10% GST to your client invoices because you’ll be required to pay it, whether it comes from your own pocket or your clients. Once you’re registered for GST, you’ll receive a BAS when it’s time to lodge your PAYG and GST.

Find out how you can automatically add GST to your invoices with our complete guide on how to invoice as a sole trader.

Optimise your taxes as a sole trader with these deductions

Take full advantage of every legal sole trader tax deduction you can to lower your final tax bill. You’ll need to follow a few crucial rules to qualify for these deductions. 

Here are the key tax obligations:

• You can only deduct business expenses.
• If you have an expense that is both personal and business, you can only deduct the business portion.
• In most cases, you must have a receipt for each business expense you claim.

Types of deductions you may claim as a sole trader:

• Occupancy expenses like rent or mortgage interest.
• Home office expenses, such as part of your electricity, phone, internet, or furniture.
• Vehicle expenses, including fuel, repairs, maintenance, or insurance.
• Business travel expenses like hotels, taxis, and plane tickets.
• Office supplies, computer equipment, and professional subscriptions.
• Superannuation contributions.

Read our guide on the different sole trader tax deductions and how to claim them. 

How to streamline your tax payment prep with Parpera

Parpera is an all-in-one financial tool, including a Wise business account to help sole traders make and receive payments, invoicing software, and much more so you can manage and grow your freelance business easily. 

Designed for the self-employed, the Parpera App also makes estimating and setting aside your tax instalments easier. Here’s how:

1. Estimate your taxes in advance

Avoid scrambling to pay a big tax bill by estimating your taxes early. Input last year’s figures or your current business revenue into the Parpera App and you’ll get an estimate of how much tax is due.

As your income fluctuates, Parpera will adjust the tax estimation accordingly. 

2. Store your quarterly instalments in a tax saver wallet

When your tax payments are due, make sure you’ve got the right amount saved up in advance to prevent falling short. 

You can transfer the right amount to your Tax Saver wallet in just a few seconds.

3. Flag tax-deductible expenses on the go

As you make business purchases, you can quickly flag them as tax-deductible before you forget and lose out on substantial tax reductions. 

Your estimated tax payment will also self-adjust each time you categorise an expense as a deduction in the app.

Be even more prepared at tax time by snapping a photo of your receipts or adding an electronic invoice to business expenses for your tax records in a few seconds.

Keep track of your tax prep and payments without missing a beat

We hope these sole trader tax essentials help you avoid unnecessary mistakes and unexpected large tax payment notices. Knowing how to use your sole trader tax rate to calculate and estimate your sole trader tax will help put you at ease and help you focus on what you really want to do: your freelancing work. 

Download Parpera to make keeping track of your tax prep and payments even more effortless.