If you need to lodge a return
How to complete your return
How your BAS and PAYG works
How to submit a return
How your PSI works
A sole trader tax return is used if you earn income as the sole owner of a business and do not meet the requirements for filing a company tax return. Sole traders will need to consider two separate types of taxes when lodging a return or calculating a tax refund:
Sole trader income tax and GST
GST is 10% tax placed on most goods and services sold in Australia. If you earn over $75,000 or drive a taxi, you will need to register for GST. When calculating your taxable income as a sole trader, you will exclude any GST charged on your earnings as these will be reported in your regular business activity statement (BAS).
Do you need to lodge a sole trader tax return?
Sole traders must lodge a tax return even if their income is below the tax-free threshold. You will still need to complete two separate forms:
- Individual tax return
- Business and professional items schedule for individuals
What you need to report
As a sole trader, you will need to report the following to the ATO when lodging your tax return:
- Business income
- Additional income such as salary, wages, dividends or rental income
- Any tax deductions you can claim as part of your business or against your additional income
How to complete a sole trader tax return
Once you have the required financial information, you can decide how to fill out and submit your return to the ATO. There are three ways to lodge your tax return:
- Through a registered tax agent
- Online using MyTax
- By paper
If you lodge via myTax your tax return is due by 31 October. If you lodge through a registered tax agent, they’ll tell you when they will lodge your tax return.
If you have paid PAYG instalments throughout the year, the ATO will automatically apply these payments to your assessment.
Using a tax agent
A registered tax agent will prepare and lodge your return, and charge a fee for their services. However, they offer a number of benefits, including:
- Prepare your return and lodge on your behalf
- Ensure you include all supporting documents to make deductions
- Identify deductions you may be unaware of
- Tax-deductible fees
You can claim the agent's fee as a deduction on your tax return for the next financial year.
Business Activity Statements (BAS)
If you’re required to pay GST, you’ll need to complete and lodge a BAS to the ATO every quarter which will contain details about your earnings and business expenses.
Unlike salaried employees, sole traders are responsible for paying their own tax. The Australian tax system allows sole traders to meet their obligations throughout the year by using PAYG (Pay As You Go) payments.
Sole traders make payments based on an estimation of their taxable income. If you are able to accurately estimate your tax payments as you earn income, you can avoid a surprise tax bill at the end of the financial year. You can estimate your PAYG payments by using the PAYG calculator.
You aren’t required to pay tax as you earn income. Many sole traders choose to make PAYG payments in quarterly instalments.
Guidelines for submitting your sole trader tax return
Sole traders have similar tax return guidelines as individuals, with a few differences relative to their income level. If you are a sole trader, you will need to:
- Use your individual tax file number when lodging your income tax return
- Report all income in your individual tax return
- Show your business income and expenses in the Business Items section
- Apply for an ABN and use your ABN for all your business transactions
- Register for Goods and Services Tax (GST) if your annual GST turnover is $75,000 or more
- Consider PAYG payments to prepare for your tax obligations
As a sole trader you can't claim deductions for money drawn from your business, even if you consider these as wages to yourself.
Personal Services Income (PSI)
Personal services income (PSI) is income produced mainly from your personal skills or efforts as an individual. If you're paid mostly for your personal efforts, skills or expertise, you might be receiving personal services income (PSI) and you may have to treat deductions in relation to this income differently.
You can receive PSI in almost any industry, trade or profession. However, some common examples include:
- Financial professionals
- Information technology consultants
- Construction workers and medical practitioners
PSI as a sole trader
If you're operating as a sole trader you can report any PSI you've received in your individual tax return. You will need to complete the Personal services income section online if lodging by using myTax. Alternatively, you can engage a registered tax agent to assist with your return.
Sole trader tax returns are similar to tax returns for individuals, however there are often a greater number of deductions sole traders may be eligible for. If you are a sole trader, you will also need to consider estimating your tax throughout the year as you earn income, and aim to reduce the amount you need to pay by making quarterly PAYG payments.
Sole Trader Tax Return FAQ
How do I lodge a sole trader tax return?
If you are a sole trader, you can lodge an individual tax return when declaring your income throughout the year. To avoid a large tax bill, many sole traders will calculate their tax throughout the year and make quarterly PAYG (Pay As You Go) payments to the ATO.
Do I need to lodge a business tax return if I’m a sole trader?
Sole traders don’t need to submit a business tax return, as they are the sole owner of the business and cannot employ themselves. Instead, sole traders submit an individual tax return for their earnings throughout the year, and make business deductions under the Business Items section of the individual tax return.
Do I need to lodge a tax return with an ABN?
You will need to apply for an ABN if you are operating as a sole trader and include this on invoices to customers when charging for your services. This allows you to receive full payment for your services, which you will need to declare using an individual tax return. If you do not include an ABN on invoices, tax will be withheld at the maximum rate and forwarded to the ATO.
What can I deduct on my tax return if I’m a sole trader?
You can claim almost anything related to your business operations as a sole trader. You will need to provide proof of the expense for every deduction you claim, and you can only claim the business portion of your expenses - i.e only the work-related use of vehicles, tools, and office supplies. You can speak to a registered tax agent to identify all possible tax deductions.