How to Pay Yourself as a Sole Trader in Australia (The Right Way)

Here is the question every sole trader tradie eventually asks: how do I actually pay myself? The short answer is that as a sole trader, there is no payroll, no salary and no PAYG. But doing it with no structure at all causes real problems at tax time. This guide explains how to do it properly.

How Sole Trader Income Actually Works

As a sole trader, you and your business are the same legal entity. All the income your business earns is your personal income. All the expenses your business incurs are your personal deductions. There is no separation in the eyes of the law or the ATO.

This means:

• You do not pay yourself a salary — there is no employer-employee relationship
• You do not have payroll or PAYG withholding for yourself
• You cannot claim wages paid to yourself as a business expense
• Your taxable income is your business revenue minus your business expenses
• You pay tax on whatever profit remains — regardless of how much you have actually transferred to your personal account

That last point catches a lot of tradies out. You pay tax on your profit, not on what you have paid yourself. Even if you left all the money in the business account and paid yourself nothing, the ATO still taxes you on the profit the business made.

What Are Drawings?

When a sole trader transfers money from the business account to their personal account, this is called a drawing. Drawings are not a business expense — they do not reduce your taxable income. They are simply you accessing the profit of your business.

In accounting terms, drawings reduce your equity in the business. They are recorded in your bookkeeping software as an equity transaction, not an expense. This is why you cannot reduce your tax bill by paying yourself more — the ATO sees straight through it.

Many tradies do not understand this and get a nasty surprise at tax time. They have been transferring money to their personal account all year thinking they are paying themselves, but the tax bill is based on the total business profit — not on what they transferred.

The System That Actually Works: Pay Yourself a Regular Amount

The most practical approach for sole trader tradies is to treat yourself like an employee in terms of payment regularity — even though you are technically not one.

Here is how to set it up:

Step 1: Open three bank accounts

• Business operating account — all client payments come in here, all business expenses go out from here
• Tax account — you move a percentage of every payment received into this account and do not touch it until BAS and tax time
• Personal account — your personal spending account

Step 2: Set a regular transfer to your personal account

Work out what your living expenses are — rent or mortgage, groceries, utilities, personal bills. Set up a regular automatic transfer from your business account to your personal account that covers these expenses. Do this weekly or fortnightly, just like a wage.

The amount should be based on what the business can sustainably support, not what you feel like spending. Look at your average monthly revenue over the last three months, subtract your average business expenses and your tax set-aside, and pay yourself what is left — or a consistent amount that is within that range.

Step 3: Move tax money out immediately

Every time you receive a client payment, move your tax percentage out immediately. This is covered in detail in the next section. The key point is doing it immediately — not at the end of the month, not at BAS time. The moment money comes in, a portion of it is not yours.

Step 4: Pay yourself super regularly

As a sole trader, nobody pays your super. You have to do it yourself. Set up a monthly automatic transfer to your superannuation fund. The government Superannuation Guarantee rate (11.5% in 2025–26) gives you a useful benchmark for how much you should be contributing.

Setting Aside the Right Amount for Tax

This is the most common financial mistake sole trader tradies make. They spend everything that comes in, then cannot pay their tax bill when it arrives. The ATO is not flexible about late payment — penalties and interest apply.

How much should you set aside? It depends on your income level, but a practical guide:

The set-aside covers both income tax and GST. If you are registered for GST, 1/11th of every invoice you issue is GST that belongs to the ATO. On a $1,100 invoice, $100 is GST. That comes out of what is left after the client pays, not on top of it.

A useful formula for most tradies in the 32.5% tax bracket: move 30% of every payment received to your tax account immediately. At the end of the quarter, use that account to pay your BAS. What remains after paying GST stays in the account for your annual income tax bill. If there is money left over after paying your tax assessment, it is yours — consider it a bonus or top up your super.

Paying Yourself Superannuation

This is the section most sole trader tradies skip. Do not skip it.

When you are employed by someone else, your employer pays 11.5% of your wages into super on top of your salary. As a sole trader, nobody does this for you. If you do not proactively contribute to super, you will have nothing when you retire except whatever assets you have built outside super.

How to Make Concessional Super Contributions as a Sole Trader

1. Join a super fund if you do not have one — AustralianSuper and Hostplus are popular, low-fee funds for self-employed people
2. Make contributions by direct transfer from your bank account to your super fund
3. Before you lodge your tax return, submit a Notice of Intent to Claim a Deduction form to your super fund
4. Your accountant then claims the contribution as a tax deduction on your return

The Tax Maths on Super Contributions

Concessional super contributions are taxed at 15% inside the fund. If your marginal tax rate is 32.5%, every dollar you put into super saves you 17.5 cents in tax compared to taking it as income. On $20,000 in super contributions, that is $3,500 in tax savings.

The concessional cap for 2025–26 is $30,000. If you have had a super balance under $500,000 and have not used your full concessional cap in previous years, you can carry forward those unused amounts and make larger one-off contributions in high-income years.

How Much Super Should You Pay Yourself?

The Superannuation Guarantee rate — 11.5% for 2025–26, rising to 12% from 1 July 2025 — is the legal minimum for employees and a sensible benchmark for self-employed people. If your taxable income is $80,000, contributing $9,200 to super is a reasonable starting point.

Even if you cannot afford the full 11.5%, anything is better than nothing. Start with $200–500 per month and increase it as your income grows.

How to Know if Your Business is Actually Profitable

Many sole traders confuse cashflow with profit. The business account has money in it, so everything must be fine. But that is not profit — it might just be money you have not spent on tax yet.

True profitability means:

• Revenue minus all business expenses
• Minus the tax that will eventually be due on that profit
• Minus super contributions
• What remains is what you have actually earned

The simplest way to track this is using accounting software — Xero, MYOB or Rounded — that separates your business income and expenses clearly. Run a profit and loss report monthly. If you are making a profit after expenses and your tax set-aside covers your actual tax bill, the business is working. If you are consistently spending more than you earn, you have a pricing or cost problem.

Pricing Yourself Correctly

Many tradies underprice their work because they calculate their rate based on what they need to take home — without accounting for tax, super, insurance, tools, vehicle costs, quiet periods and the cost of running a business.

A simple rule: your charge-out rate needs to cover your personal drawings, plus tax (approximately 30–35% of revenue), plus super (11.5%), plus all business expenses. Add those up, divide by your billable hours, and that is your minimum viable rate. Most tradies should be charging more than they currently are.

When to Consider Moving from Sole Trader to a Company

Sole trader is the simplest and cheapest structure for most tradies starting out. But as your income grows, a company structure can offer significant tax advantages. The company tax rate is 25% (for base rate entities with turnover under $50 million), compared to individual marginal rates of up to 45%.

Consider speaking to an accountant about a company structure when:

• Your taxable income consistently exceeds $120,000
• You want to separate personal and business liability
• You are employing multiple people and growing
• You want to retain profits in the business at the lower company tax rate

The cost of operating a company — ASIC fees, more complex accounting, payroll for yourself — needs to be weighed against the tax savings. At lower incomes, the savings do not justify the complexity. At higher incomes, they usually do.

The Simple System — A Summary

If you take nothing else from this article, take this:

1. Open a separate business bank account if you have not already — this is non-negotiable
2. Move 30% of every payment to a tax account immediately — before you spend anything else
3. Pay yourself a consistent amount weekly or fortnightly — treat it like a wage
4. Set up a monthly super contribution — even $300/month is a start
5. Use accounting software — Xero, MYOB or Rounded — so you can see your actual profit
6. Speak to a registered tax agent at least once a year — the cost is deductible and they will save you more than they charge

The tradies who build wealth are not necessarily the ones who earn the most. They are the ones who manage their money with a system. The above system is not complicated — it just requires setting it up once and sticking to it.

Use our free tax savings calculator to see how much your deductions could reduce your tax bill this year:

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And if you need the right accounting software to track your income and expenses properly:

→ Read our comparison: Xero vs MYOB vs QuickBooks for Tradies