A sole trader tradie pays individual income tax on their business profit, using the same tax brackets as an employee, plus a 2 percent Medicare levy. If your turnover passes $75,000, you also collect and pay 10 percent GST. There is no special lower tax rate for being a sole trader. Your profit is added to any other income and taxed at the normal individual rates.
That surprises a lot of tradies who expect a flat "business" rate. Here is how the numbers actually work, and how much to put aside.
You are taxed on profit, not turnover
The first thing to get straight: you pay income tax on your profit, not everything that lands in your account. Profit is your income minus your legitimate business expenses, such as tools, materials, vehicle running costs, insurance, phone and software.
So the more of your real costs you claim, the lower your taxable profit. Keeping clean records all year is what makes this work, which is where job sheets and tidy invoices earn their keep.
Current individual income tax rates
For the 2024-25 year, the resident individual rates are:
- $0 to $18,200: no tax (the tax-free threshold)
- $18,201 to $45,000: 16c for each $1 over $18,200
- $45,001 to $135,000: $4,288 plus 30c for each $1 over $45,000
- $135,001 to $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
On top of that, most people pay the 2 percent Medicare levy. These are individual rates, so your trade profit stacks on top of any wages or other income you earn in the same year.
A simple worked example
Say your trade profit for the year is $90,000 after expenses:
- The first $18,200 is tax-free.
- The slice from $18,201 to $45,000 is taxed at 16 percent.
- The slice from $45,001 to $90,000 is taxed at 30 percent.
That works out to roughly $18,288 in income tax, plus around $1,800 Medicare levy, for a total near $20,000, or about 22 percent of your profit. Earn more and your average rate climbs, because the higher slices are taxed harder.
This is why a flat "set aside 30 percent" rule is safe for most sole traders: it covers the tax and leaves a buffer.
Where GST fits in
GST is separate from income tax and only applies once you register, which is compulsory at $75,000 of turnover. When registered:
- You add 10 percent GST to your prices.
- The GST you collect is not your money. It is one eleventh of each GST-inclusive payment, and it goes to the ATO on your Business Activity Statement.
- You can claim GST back on your business purchases.
The trap is spending the GST you collect and then scrambling at BAS time. Treat it as money you are holding for the ATO, not income.
How much to set aside from each job
Put two buckets aside as the money comes in:
- Income tax: roughly 25 to 30 percent of your profit. Use the higher end if you are having a strong year.
- GST (if registered): the one eleventh of every payment that is GST.
Guessing here is how people end up with a tax bill they cannot pay. Our free Tradie Tax Calculator estimates your income tax and GST so you know the exact amount to park from each job. For more on building the habit, read how much tax to set aside as a tradie.
Keep records so you pay less, not more
Every expense you fail to record is profit you pay tax on for no reason. Capture your costs as you go, send proper tax invoices, and set aside tax and GST from each payment. Do that and tax time becomes a formality instead of a shock.
This is general information, not tax or financial advice. Tax rates and thresholds change, and your situation will affect the numbers. For your own position, check the ATO website or talk to a registered tax agent.