Sole Trader Tax Calculator Australia
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Working out how much tax you owe as a sole trader in Australia can be confusing — you pay income tax at individual marginal rates on your business profit, plus Medicare Levy, minus any offsets you’re entitled to. This free sole trader tax calculator gives you an instant estimate for FY2025-26 based on the Stage 3 brackets that took effect 1 July 2024. Enter your revenue, deductible expenses, and any other income, and the calculator shows your taxable income, income tax, Medicare Levy, LITO offset, net tax, take-home pay, and effective rate.
Disclaimer: This calculator is a general estimate only based on FY2025-26 rules and does not include super contributions, HELP/HECS repayments, the Medicare Levy Surcharge, or the small business income tax offset. It is not tax advice. Consult a registered tax agent for advice specific to your circumstances.
Sole Trader Tax Calculator
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These sanity checks run when you open this section. They use FY2025-26 rules so you can verify the calculator's logic.
| Scenario | Expected net tax | Calculated | Match |
|---|
How sole trader tax works in Australia
As a sole trader, you do not pay tax as a business entity — your business income flows directly into your personal tax return. The ATO taxes your business profit (gross income minus allowable deductions) at the same marginal rates that apply to individual residents. If you also have employment income, investment income, or other assessable amounts, all of it is added together to form your total taxable income before rates are applied.
This means your marginal rate on additional sole trader income depends on what you already earn from other sources. A freelancer who earns $40,000 from a part-time PAYG job and then generates another $40,000 in consulting fees does not pay the lowest rates on the consulting income — the second $40,000 is stacked on top of the first, pushing part of it into a higher bracket.
The full calculation has three components:
- Income tax — applied to total taxable income using the resident marginal brackets.
- Medicare Levy — 2% of taxable income, with a shade-in zone for low earners.
- Offsets — the Low Income Tax Offset (LITO) can reduce the income tax component but cannot create a refund.
FY2025-26 income tax brackets
These are the Stage 3 rates that took effect on 1 July 2024 and remain in place for FY2025-26. They represent the largest change to Australia’s individual tax brackets in over a decade, lowering the 32.5% rate to 30% and lifting the threshold for the 37% rate.
| Taxable income | Tax on this band |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 + 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 + 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 + 45c for each $1 over $190,000 |
Note that these are marginal rates: only the income within each band is taxed at that rate, not your total income. Your effective rate (total tax divided by total income) is always lower than your marginal rate, because the lower brackets are taxed at lower rates first.
Medicare Levy and the low-income shade-in
Most Australian residents pay a Medicare Levy of 2% on their taxable income. This is collected alongside income tax and reported on your tax return. As a sole trader you pay Medicare Levy at exactly the same rate as a PAYG employee — there is no separate self-employment levy or exemption.
For low-income earners the levy is reduced or eliminated entirely:
- Below $26,000: no Medicare Levy.
- $26,001 – $32,500: shade-in zone. The levy phases in at 10 cents for each dollar above $26,000, so you pay less than the full 2% rate.
- Above $32,500: full 2% applies to your entire taxable income.
The low-income thresholds are indexed periodically. The figures above reflect the approximate values for FY2025-26; check the ATO Medicare Levy page for the confirmed amounts before lodging.
Note: higher earners who do not hold an appropriate level of private hospital cover may also be liable for the Medicare Levy Surcharge (1%–1.5% depending on income). This calculator does not include the MLS — see the ATO for details if your income exceeds $93,000.
Low Income Tax Offset (LITO)
The Low Income Tax Offset reduces the income tax payable by low and middle earners. It is a non-refundable offset, meaning it can bring your income tax to zero but it cannot generate a refund — and it does not reduce Medicare Levy.
For FY2025-26 the LITO works as follows:
- Up to $37,500: maximum offset of $700.
- $37,501 – $45,000: offset reduces by 5 cents for each dollar above $37,500 (falling from $700 to $325 at $45,000).
- $45,001 – $66,667: offset reduces by 1.5 cents for each dollar above $45,000 (falling from $325 to $0 at $66,667).
- Above $66,667: no LITO.
Many sole traders who earn modest business income alongside no other income benefit significantly from the LITO. A sole trader with $30,000 of taxable income, for example, pays $1,888 in income tax before the offset and $0 after applying the full $700 LITO — bringing their effective income tax rate to around 9.3% before Medicare Levy.
What this calculator excludes
To keep the estimate simple and fast, several items are not included. For many sole traders these exclusions are significant — review each one with your tax agent:
Concessional super contributions. Sole traders can claim a tax deduction for personal super contributions up to the concessional cap. For FY2025-26 the cap is $30,000 per year. Deductible super contributions reduce your taxable income, which lowers both income tax and potentially moves you into a lower LITO phase-out zone. This is one of the most effective tax planning levers available to sole traders — but the rules are changing (the government has proposed indexation beyond $30,000 in coming years; confirm the current cap with the ATO or your super fund).
HELP / HECS repayments. If you have a student loan, compulsory repayments kick in once your Repayment Income exceeds the minimum threshold (around $54,000 for FY2025-26). Repayments are based on a percentage of your income, not a tax rate, and are not deductible. This calculator ignores HELP.
Medicare Levy Surcharge. Earners above approximately $93,000 without an appropriate level of private hospital cover pay an additional 1%–1.5% MLS on top of the standard Medicare Levy. Not included here.
Small business income tax offset. Unincorporated small businesses with aggregated turnover below $5 million may be eligible for an offset of up to $1,000 on the tax attributable to business income. The calculation is complex and this estimator ignores it.
Franking credits, rental income, and capital gains. This tool covers business income and one field for other income. It does not model investment income, capital gains tax, franking credits, or negative gearing.
Frequently asked questions
What are the tax brackets for sole traders in 2025-26?
Sole traders use the same individual resident tax brackets as PAYG employees. For FY2025-26 (Stage 3 rates): $0–$18,200 at 0%; $18,201–$45,000 at 16%; $45,001–$135,000 at 30%; $135,001–$190,000 at 37%; and $190,001 and over at 45%. These apply to your total taxable income, which includes both business profit and any other assessable income.
Do sole traders pay Medicare Levy?
Yes. Sole traders pay the Medicare Levy at exactly the same rate as employees — 2% of taxable income. There is no concession or exemption for self-employment. The only relief available is the low-income shade-in zone (below approximately $32,500), which phases the levy in gradually rather than applying the full 2% from the first dollar.
Can I claim the Low Income Tax Offset as a sole trader?
Yes. The LITO is available to any Australian resident individual regardless of how their income is earned. If your total taxable income is below $66,667, you will receive some or all of the maximum $700 offset. The offset reduces your income tax (not Medicare Levy) and is non-refundable — it reduces tax to zero but cannot produce a cash refund.
Are super contributions deductible for sole traders?
Yes. If you make personal concessional contributions to a complying super fund and lodge a valid Notice of Intent to Claim, those contributions are deductible up to the concessional cap ($30,000 in FY2025-26). Deducting super reduces your taxable income, which directly reduces income tax, may increase your LITO entitlement, and reduces Medicare Levy. This calculator does not model super — enter your super contributions as part of your business expenses if you want a rough estimate of the impact, but speak to your tax agent for a precise calculation.
Why is my effective tax rate lower than my marginal tax rate?
Your marginal rate is the rate applied to each dollar in the highest bracket you reach. Your effective rate is your total tax as a percentage of total income. Because the lower brackets are taxed at lower rates (including the tax-free threshold up to $18,200), your overall average is always lower than your marginal rate. For example, a sole trader earning $80,000 has a marginal rate of 30% but an effective rate of around 20.5% because the first $18,200 is taxed at 0%, the next $26,800 at 16%, and only the remaining $35,000 at 30%.
Do sole traders pay PAYG instalments?
Most do. Once your tax payable exceeds a threshold (around $1,000 after credits), the ATO will automatically enrol you in the PAYG instalments system. Instalments are quarterly pre-payments of your expected income tax and Medicare Levy for the year, reducing the large bill at tax time. They are paid on your BAS or via a separate instalment notice. If your income fluctuates significantly you can vary your instalments. For help estimating your quarterly BAS obligations, see the BAS Quarterly Calculator.
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Last reviewed: 4 May 2026 (FY2025-26). Tax law changes — verify the current brackets, Medicare Levy thresholds, and LITO rules against the ATO before lodging. This estimator does not include super, HELP/HECS, MLS, or the small business income tax offset.