Prepare a sole-trader planning statement

A sole trader is taxed as the individual

An Australian sole trader is an individual running a business, not a separate company. The business does not lodge a standalone company tax return or apply a company tax rate to its profit. Instead, the sole trader reports business income and expenses in the business section of the individual’s tax return. Net taxable business income combines with salary, investment and other assessable income, and the resulting taxable income uses the person’s applicable individual scale.

That distinction explains the calculator’s two layers. The first layer prepares a simple business profit or loss from entered assessable business income less allowable business deductions. The second combines the business result with other personal return amounts. PAYG instalments are then credits against the assessment; they are prepayments, not extra business deductions.

A sole trader owns and controls the business and is legally responsible for its debts and losses. Drawing cash from the business bank account is generally not a wage paid to yourself and does not reduce taxable profit. Likewise, transferring profit into a personal account does not create the tax event: the return starts with assessable income and deductions, regardless of how much cash was withdrawn.

Resident income-tax scales available in this calculator

The 15% first taxable band applies from 1 July 2026 under the legislated 2026–27 resident scale. It must not be backdated to 2025–26. The displayed marginal bracket is the rate on the next dollar within the ordinary resident table, not a rate applied to all business profit.

The scales exclude the Medicare levy. The simple 2% selection is useful for reserving at incomes where no reduction or exemption is expected, but it does not apply the year’s low-income phase-in, family threshold, seniors and pensioners threshold or exemption rules. Select manual or exclude when those circumstances matter.

The page estimates the continuing low income tax offset using the published $700 maximum and taper formula. It treats all selected offsets as non-refundable and does not allow them to reduce Medicare or separately entered liabilities.

Read the calculation in four separate stages

The monthly reserve result divides any remaining estimated amount payable by 12. It is a catch-up indicator, not an ATO instalment notice and not the amount to transfer after every invoice. A business with seasonal revenue may need a different schedule. Keep GST collected, employee PAYG withholding and super obligations separate from the owner’s income-tax reserve.

Small business income tax offset: why the result is only an estimate

For 2021–22 and later income years, the small business income tax offset rate is 16%, with a maximum offset of $1,000. Eligibility generally requires an eligible sole trader or a share of net small business income from a qualifying partnership or trust, and the small business aggregated turnover threshold is less than $5 million. The ATO calculates the actual offset from return information.

The formula is not 16% of profit. Broadly, it applies 16% to the proportion of basic income tax that relates to eligible net small business income, capped at $1,000. This page limits positive entered business profit to taxable income, divides that amount by taxable income, applies the proportion to basic income tax and then applies 16%. It also limits the result to tax still available after LITO.

Some amounts are excluded from net small business income for this offset, including net capital gains and salary or wages; personal services income needs special attention unless it is from a personal services business. Tax-related expenses, gifts and personal super contributions are also treated differently in the offset calculation. Therefore, a field labelled business profit cannot establish the exact eligible amount.

If the business result is a loss, the offset uses zero. The calculator also suppresses its estimate when entered business turnover reaches $5 million or eligibility is switched off.

Business losses do not always reduce other income immediately

The non-commercial loss rules can defer a sole trader’s business loss instead of allowing it to offset salary or investment income in the same year. Tests, exceptions, adjusted taxable income and the nature of the activity matter. That is why the default loss setting does not subtract a negative business result from other income.

Select the current-year offset option only after confirming the loss is deductible in that income year. A deferred loss should be recorded and considered in a later year under the applicable rules; it should not disappear from the business records merely because the calculator leaves it out of current taxable income.

Multiple business activities add another layer. A deductible loss from one activity can affect net small business income from another, while a deferred non-commercial loss may need to be added back for the small business offset calculation. Prepare each activity’s records before combining the totals.

GST, BAS and PAYG are related cash systems, not one tax

A sole trader generally must register for GST when annual GST turnover is $75,000 or more. Taxi, limousine and ride-sourcing providers have a registration requirement regardless of turnover. GST turnover has statutory inclusions and exclusions, so the page flags a review using entered business income rather than declaring registration status.

If registered, use GST-exclusive sales and expenses in the profit fields where the GST is separately claimable or payable. The GST collected is not a personal income-tax reserve. Reconcile it through the business activity statement, together with claimable GST credits. A business below the threshold can sometimes register voluntarily, which brings ongoing reporting obligations.

PAYG instalments prepay the owner’s expected income tax. PAYG withholding is different: it is tax withheld from certain payments to workers or suppliers and must be remitted as required. Employer superannuation obligations are separate again. A healthy bank balance can be misleading when it contains amounts held for GST, PAYG withholding, super and income tax.

Worked planning example

A sole trader records $110,000 of GST-exclusive sales, $5,000 of other assessable business income and $35,000 of allowable business deductions. Net business profit is $80,000. If other taxable income before personal deductions is $20,000 and other allowable deductions are $2,000, estimated taxable income is $98,000.

For 2025–26, basic resident income tax is $4,288 on the slice to $45,000 plus 30% of the next $53,000, producing $20,188. LITO is zero at this income. The page estimates the small business offset from the business-income proportion, but caps it at $1,000. A simple full Medicare amount adds 2% of taxable income, or $1,960. Before other liabilities, the estimate is $21,148 after the capped small business offset.

If $12,000 has already been paid through PAYG instalments or withholding, the simplified return position is about $9,148 payable. That amount shows why revenue should not all be treated as spendable cash. The actual assessment can differ after depreciation, trading stock, private-use adjustments, capital allowances, personal services income rules, Medicare thresholds and other return items are completed.

Make the estimate traceable to business records

Reconcile sales to invoices, payment platforms, bank deposits, cash receipts and any taxable payments annual report data. Record non-cash or barter income where required. Separate GST in accounting records and investigate differences rather than forcing a calculator total to match the bank.

For expenses, keep evidence of the business purpose, date, supplier, amount and GST treatment. Apportion mixed-use vehicle, phone, internet, home, travel and equipment costs using a reasonable method supported by records. Private expenses and the owner’s drawings are not deductible merely because the business account paid them.

Track depreciating assets, trading stock, debtors, creditors and prepayments using the rules that apply to the business. Preserve PAYG instalment notices and payment confirmations. Recalculate the plan at least quarterly and after a substantial change in profit, other income, deductions or family circumstances.