✅ 2025–26 tax rates — verified

Tax is the biggest cost most tradies underestimate when they go out on their own. As an employee, your boss handled it. As a self-employed tradie, you're responsible — and if you don't set money aside, a surprise ATO bill can sink your business. Here's exactly what you'll pay, with real numbers.

📋 In This Article

  1. →2025–26 income tax rates
  2. →Worked examples by income
  3. →GST obligations
  4. →Superannuation
  5. →How to reduce your tax bill
  6. →How much to set aside

2025–26 Income Tax Rates for Sole Traders

As a sole trader, you pay income tax on your net profit (revenue minus deductions) at the same rates as individual income tax. There is no separate "business tax" rate for sole traders.

Taxable IncomeTax RateTax Payable on This Portion
$0 – $18,2000%Nil
$18,201 – $45,00019%19c per $1 over $18,200
$45,001 – $135,00032.5%$5,092 + 32.5c per $1 over $45,000
$135,001 – $190,00037%$34,342 + 37c per $1 over $135,000
Over $190,00045%$54,682 + 45c per $1 over $190,000

The 2% Medicare Levy applies on top of income tax for most Australians. The Low Income Tax Offset (LITO) reduces tax for lower earners.

Worked Examples — Tax at Different Tradie Income Levels

These examples show the approximate total tax bill for a sole trader tradie before claiming any deductions beyond the tax-free threshold. Your actual bill will be lower once you've claimed your tools, vehicle and other deductions.

Annual IncomeIncome TaxMedicare (2%)Total TaxEffective RateTake Home
$60,000$9,967$1,200$11,16718.6%$48,833
$80,000$16,467$1,600$18,06722.6%$61,933
$100,000$22,967$2,000$24,96725.0%$75,033
$120,000$29,467$2,400$31,86726.6%$88,133
$150,000$42,997$3,000$45,99730.7%$104,003

These are approximate figures. Always confirm with your accountant for your specific situation.

GST — The Tax Most New Tradies Forget

Once your annual turnover exceeds $75,000, you must register for GST. This means you collect an extra 10% on every invoice and send that to the ATO quarterly via your BAS.

The critical thing to understand: GST is not your money. If you invoice $11,000 including GST, only $10,000 is yours. The $1,000 belongs to the ATO. Spending it is how tradies end up in serious debt to the tax office.

Superannuation — Your Responsibility Now

As a self-employed tradie, nobody pays your super for you. The ATO strongly encourages self-employed people to make voluntary super contributions — and you can claim them as a tax deduction, which makes it one of the most powerful ways to reduce your tax bill legally.

Contributing $15,000 to super as a sole trader earning $100,000 saves approximately $4,875 in income tax (at the 32.5% marginal rate minus the 15% super tax). That's free money you're leaving on the table if you don't contribute.

How to Legally Reduce Your Tradie Tax Bill

The biggest legitimate deductions most tradies can claim:

  • Vehicle logbook — often $8,000–$15,000+ deduction for tradies who drive regularly
  • Tools and equipment — instant write-off for eligible items
  • Super contributions — deductible up to the concessional cap ($30,000 for 2025–26)
  • Insurance premiums — public liability, income protection, tools cover
  • Phone and internet — work-use percentage
  • Accounting fees — fully deductible
  • Training and licences — if related to your current work

→ See the full list of tradie tax deductions →

How Much to Set Aside for Tax

The practical rule for sole trader tradies: set aside 25–30% of every invoice into a separate account earmarked for tax. Keep it there. Don't touch it. Pay it to the ATO when your bill comes.

This covers income tax, Medicare levy, and leaves a small buffer. If you're in the higher income brackets or not claiming many deductions, go closer to 30%.

💡 Pro tip:

Open a separate bank account labelled "Tax". Set up an automatic transfer of 27% every time money hits your main account. Do this once, forget about it, and you'll never face an ATO surprise again.

Do tradies pay company tax or income tax?

Sole traders pay income tax at individual rates on their net business profit. Only companies (Pty Ltd) pay the company tax rate (25% or 30% depending on size). Most self-employed tradies operate as sole traders and pay income tax.

When do I have to pay my tax bill?

After you lodge your tax return, the ATO issues a notice of assessment. Once your tax debt exceeds a threshold, you'll be put on PAYG instalments — paying tax quarterly throughout the year rather than a lump sum. This is actually helpful for managing cash flow.

Can I pay less tax by paying myself a salary?

Not as a sole trader — you and your business are the same legal entity. If you operate as a company, you can potentially pay yourself a salary and have the remainder taxed at the company rate, but this involves significant setup cost and complexity. Talk to your accountant when you're earning $100,000+ net profit.

Tax Calculation Examples -- Real Tradie Scenarios for 2025 to 2026

Scenario 1: Sole Trader Electrician -- $120,000 Gross Revenue

ItemAmount
Gross revenue$120,000
Less: vehicle expenses (logbook, 80% of $12,000)-$9,600
Less: tools and equipment-$4,200
Less: licences and training-$1,800
Less: insurance premiums-$2,400
Less: phone and software subscriptions-$1,500
Less: accounting fees-$800
Taxable income$99,700
Estimated tax including Medicare levyapprox $25,700
Less: super contribution deduction ($15,000)-$15,000
Tax with super strategy appliedapprox $20,825

The super strategy saves approximately $4,875 in income tax -- while $15,000 grows in your retirement account at a 15% tax rate instead of your 32.5% marginal rate.

Scenario 2: Plumber -- $80,000 Gross Revenue

At $80,000 gross, after proportional deductions of around $18,000, taxable income drops to approximately $62,000. Estimated tax including Medicare levy is around $12,500 for 2025 to 2026.

How much tax should a tradie set aside from each invoice?

A practical rule: set aside 25 to 27% of every invoice into a separate account if your annual income is $80,000 to $120,000. At $120,000 to $180,000, set aside 30 to 32%. This covers income tax, Medicare levy and PAYG instalments. Having it in a separate account means you are never surprised by a tax bill.

Do tradies pay more tax than employees on the same income?

No -- self-employed tradies often pay significantly less tax than employees on the same gross income because they can deduct vehicle costs, tools, insurance, super contributions and other business expenses that employees cannot. An employee earning $100,000 pays tax on the full amount. A tradie with $100,000 revenue and $25,000 in legitimate deductions pays tax on only $75,000 -- a difference of several thousand dollars each year.

## How to Structure Your Tax Strategy as a Self-Employed Tradie The difference between paying tax reactively and strategically can save you thousands every year. Most tradies don't realise they're leaving money on the table because they haven't set up their business structure properly from day one. **Sole trader vs. company structure matters more than you think.** As a sole trader (most common for tradies), your business income is added to your personal tax return. You pay tax at the marginal rate — so if you earn $120,000 from your plumbing or electrical work, you're taxed at 39% plus Medicare levy. Straightforward, but expensive. Setting up as a company means your business income is taxed at the flat company rate of 30%. For tradies earning over $80,000 a year, this can be worth exploring with an accountant. You pay company tax on profits, then if you take a salary, you pay personal tax on that. It sounds complicated, but the structure lets you split income, access franking credits, and retain earnings for reinvestment in tools and vehicles. The trade-off: more admin, more accounting fees (typically $1,500–$3,000 extra per year), and stricter record-keeping. **Partnership structures (two or more tradies) open another door.** If you're setting up with another electrician or carpenter, you can split income between partners, which reduces each person's marginal tax rate. This is especially powerful if one partner earns significantly more than the other. The reality: get this decision right in Year 1, and you'll save more than the cost of good accounting advice. Get it wrong, and you're paying extra tax for years before you fix it. ## Essential Deductions Every Tradie Must Claim (And Actually Document) The ATO allows you to deduct any expense that's directly related to earning your income. Most tradies claim maybe 60% of what they're legally entitled to claim, which means they're handing free money to the government. **Vehicle and travel expenses** are your biggest opportunity. You can claim either: - **Actual method:** Record every kilometre, every fuel receipt, every service. Claim the actual cost (ATO rate is 88c/km for 2025–26, but actual costs are often higher for work vehicles). This works best if you drive a lot for work. - **Cents-per-kilometre method:** Simply claim 88c/km for every work-related drive. No receipts needed. For most tradies, this is easier and often yields the same result. The trap: claiming your full commute from home to your first job. That's not deductible — only the kilometres between jobs count, plus any kilometres to job sites beyond your normal workplace. If you drive from your garage to a client's house 25km away, that's 25km deductible. If the garage is also your home, it gets more complex — document it properly. **Tools and equipment under $30,000 can be instantly written off** (until 30 June 2026 under current rules). A $2,500 impact drill, new welder, or scaffolding rig comes straight off your taxable income in the year you buy it. Above $30,000? It depreciates over several years. Keep receipts for everything. **Home office expenses** — this one surprises tradies. If you work from a dedicated office space at home (even a corner of a garage), you can claim a portion of: - Electricity and heating/cooling - Phone and internet - Rent or mortgage (calculated by the percentage of your home used for business) - Council rates and insurance (proportional) The ATO accepts either a simplified method (80c per hour worked in your home office) or actual expenses with detailed records. For most tradies earning trades income, the simplified method is easier. **Superannuation contributions** (up to $30,000 per year) reduce your taxable income dollar-for-dollar. If you're self-employed, you don't get the 11.5% superannuation guarantee that employees receive — you have to set it aside yourself. Here's the smart play: contribute to your super account as a tax deduction, and it grows tax-free until retirement. A $15,000 contribution reduces your taxable income by $15,000, saving you up to $5,850 in tax (at the 39% rate).

TIP: Use accounting software like Xero or job management tools like Tradify to log expenses as you go. Trying to remember what you spent six months ago is impossible — and the ATO knows it. Real-time logging protects you in an audit and makes tax time painless.

## Tax Deductions Checklist for Tradies Here's what you can claim (and should be tracking): | **Expense Category** | **Deductible?** | **Keep Records?** | **Notes** | |---|---|---|---| | Vehicle fuel and maintenance | ✅ Yes | ✅ All receipts | Use 88c/km or actual costs | | Tools and equipment (<$30k) | ✅ Yes | ✅ Receipts + serial numbers | Instant write-off | | Uniforms and work clothing | ✅ Yes | ✅ Receipts | Only if not everyday wear | | Training and certifications | ✅ Yes | ✅ Course fees + completion certificate | Licences and upskilling | | Home office expenses | ✅ Yes | ✅ Detailed records | Simplified method or actual | | Phone and internet | ✅ Yes (proportional) | ✅ Bills | Separate work-related use % | | Insurance (public liability, tools) | ✅ Yes | ✅ Policies | Don't forget tools cover | | Superannuation contributions | ✅ Yes | ✅ Fund statements | Up to $30k deductible | | Vehicle registration and rego | ✅ Yes | ✅ Rego papers | Work vehicle only | | Contractor payments | ✅ Yes | ✅ Invoices + ABN | If you sub out work | | Advertising and website | ✅ Yes | ✅ Invoices | Digital ads, job boards, flyers | | Accounting and tax fees | ✅ Yes | ✅ Accountant invoices | The cost of doing business right | | Meals while travelling for work | ⚠️ No | N/A | Personal expense | | Home internet (general use) | ⚠️ Partial | ✅ Bills | Only claim work-related portion | | Car commute to your main workshop | ⚠️ No | N/A | Not deductible | --- ## Frequently Asked Questions

What happens if I don't set money aside for tax?

The ATO will issue an assessment, and you'll owe the full amount plus interest (currently around 10% per annum). If you can't pay, they can take action: garnishing your bank account, selling tools, or suspending your ABN. Self-employed tradies have been bankrupted by underestimating this. Set aside 30–35% of every invoice into a separate account immediately. Treat it like it's not yours.

Do I need to register for GST?

Only if your annual turnover exceeds $75,000 (for most tradies, this happens in Year 1 or 2). Once you hit it, you must register. The upside: you can claim GST on your expenses. The downside: you have to charge GST on invoices and lodge quarterly/annual GST returns. Most tradies find it's worth registering early anyway — it looks more professional on invoices, and you recover GST from suppliers.

Should I get insurance, and is it tax deductible?

Yes, absolutely. Public liability insurance is non-negotiable — one accident without cover can end your business. Tools and equipment insurance, vehicle insurance, and income protection are all deductible. Check BizCover for tradie-specific quotes. Premiums are a business expense — claim them all.

--- **Bottom line:** Tax isn't something you deal with once a year. It's something you manage every single day by keeping records, claiming everything you're entitled to, and setting money aside. Get an accountant who understands tradies — they'll save you far more than their fees cost.