Top Tax Tips for Sole Traders in Australia 2026

As a sole trader in Australia, you report your business income on your personal tax return — which means the ATO taxes your business profit at individual marginal tax rates. With the top marginal rate sitting at 47%, knowing how to legally minimise your tax bill is essential.

The good news is that sole traders can claim a wide range of deductions. With the right approach, you can significantly reduce what you owe the ATO. Here are the top tax tips every Australian sole trader should know for the 2025-2026 financial year.

1. Claim Every Legitimate Business Deduction

The ATO allows you to deduct any expense that is directly related to earning your business income. Common deductions for sole traders include:

2. Make Voluntary Super Contributions

As a sole trader, you don't have an employer making compulsory superannuation contributions on your behalf. But you can make voluntary contributions to your super fund and claim them as a tax deduction.

For the 2025-2026 financial year, the concessional (before-tax) contributions cap is $30,000. Contributions you make and claim as a deduction are taxed at just 15% inside super — which is likely much lower than your marginal tax rate. This is one of the most powerful tax minimisation strategies available to sole traders.

To claim the deduction, you must lodge a "Notice of intent to claim a deduction for personal super contributions" with your super fund before you lodge your tax return.

3. Use PAYG Instalments to Manage Cash Flow

Once your business income exceeds a certain threshold, the ATO will put you on Pay As You Go (PAYG) instalments. Instead of paying a large tax bill at the end of the year, you pay in quarterly instalments throughout the year.

Proactively managing PAYG instalments helps you avoid a nasty tax bill surprise in July. You can vary your instalments down if your income drops, but be careful — if you under-vary significantly, you may be charged interest.

Set aside 25-30% of each invoice payment into a separate savings account specifically for tax. This simple habit prevents cash flow crises at tax time.

4. Keep Impeccable Records Year-Round

The ATO requires you to keep records for at least five years. Good record-keeping isn't just about compliance — it's about making sure you can substantiate every deduction you claim.

• Keep receipts for all business expenses (digital copies are fine)
• Maintain a vehicle logbook if claiming car expenses
• Record home office hours worked in a diary or app
• Keep a record of all income received, including cash payments
• Store bank statements and credit card records for the business
• Retain contracts and agreements with clients and suppliers

5. Consider Prepaying Expenses Before EOFY

If you're going to have a high-income year, consider prepaying certain business expenses before 30 June to bring the deduction forward. The ATO allows small businesses to prepay expenses up to 12 months in advance and claim the deduction in the current financial year.

Examples of expenses you can prepay include business insurance, subscriptions, rent, and professional memberships. This strategy works best when you expect your income (and therefore tax rate) to be higher this year than next year.