How Much Tax Should a Sole Trader Set Aside? (2026–27 Rates)
Quick answer
Most sole traders should set aside 20–30% of their profit for tax. The right amount depends on your total income. With 2026–27 rates, a sole trader with $60,000 profit and no other income pays about 16% in tax and Medicare levy, while someone on $100,000 pays about 23%. If you also earn a salary, set aside more, because your business profit is taxed at your highest rate.
Employees have tax taken out of every pay. Sole traders don’t, so the whole bill arrives at once when you lodge your tax return. Here’s how to work out what to put aside, so tax time isn’t a shock.
2026–27 tax rates for Australian residents
| Taxable income | Tax rate |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 15% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001 and over | 45% |
Most people also pay the 2% Medicare levy on top. The 15% rate is new from 1 July 2026 (it was 16% in 2025–26) and is legislated to fall to 14% from 1 July 2027.
Worked examples
| Profit | Tax | Medicare levy | Total | % of profit |
|---|---|---|---|---|
| $40,000 | $3,270 | $800 | $4,070 | ≈ 10% |
| $60,000 | $8,520 | $1,200 | $9,720 | ≈ 16% |
| $80,000 | $14,520 | $1,600 | $16,120 | ≈ 20% |
| $100,000 | $20,520 | $2,000 | $22,520 | ≈ 23% |
| $150,000 | $36,570 | $3,000 | $39,570 | ≈ 26% |
Offsets such as the low income tax offset and the small business income tax offset can reduce your bill a little. It’s still safer to save based on the figures above.
If you also have a job
Your business profit is added on top of your wages. If your salary already puts you in the 30% bracket, every extra dollar of business profit is taxed at 30% plus 2% Medicare. In that case, set aside about 32% of your business profit, or more if your total income goes above $135,000.
A simple system that works
- Open a separate savings account just for tax.
- Every time a client pays you, move a fixed percentage into it: 25% is a safe starting point for most.
- If you’re registered for GST, also move one-eleventh of each GST-inclusive payment, as that GST isn’t yours.
- Review the percentage each quarter against your actual profit.
- Leave the money alone until your tax bill or PAYG instalment is due.
Tip: Profit is income minus business expenses. If you set aside a percentage of everything you receive, rather than of profit, you’ll naturally build a small buffer.
What are PAYG instalments?
Don’t forget these
- GST you’ve collected, if registered: it’s owed to the ATO each BAS
- Your accountant’s fees, which are tax deductible next year
- Super for yourself: not compulsory, but personal contributions may be tax deductible
- Business insurance and equipment replacement
Want a tax return with no surprises?
Our registered tax agent partner can prepare and lodge your sole trader return and tell you what to set aside next year. Fixed price from $330.
Frequently asked questions
Is 30% enough to set aside?
For most sole traders with no other income, yes, and often more than enough. If your total income is above $135,000, consider setting aside more.
Do I pay tax on all my income or just profit?
Just your taxable profit: business income minus allowable business expenses. That’s why good records of expenses save you money.
When do I pay my tax as a sole trader?
When the ATO issues your notice of assessment after you lodge your return, usually with a due date a few weeks or months later. Once you’re in PAYG instalments, you’ll also pay quarterly.
Should I become a company to pay less tax?
Sometimes. Companies pay a flat 25% or 30% rate, but there are extra costs and rules for taking money out. Get advice before switching.
This article is general information only, not tax, legal or financial advice. Figures use 2026–27 resident rates and are estimates only. Check ato.gov.au or speak with a registered tax agent about your situation.
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