Australia has no special sole trader tax rate. Your business profit (income minus deductions) is added to any wages, interest and other income, and the total is taxed at the same individual marginal rates that apply to employees. For the 2026-27 income year, the first slice is tax-free, the rest climbs through four brackets, and the Medicare levy sits on top.
The rates are the easy bit, though. What actually catches creatives out is how those rates land on lumpy income from gigs, commissions, royalties and shoots, with nobody taking tax out along the way. A $20,000 side gig on top of a $50,000 wage can leave a $6,400 bill that never shows on a payslip.
A sole trader and their business are legally the same taxpayer. The ATO doesn't see "the band" or "the studio" as a separate entity if you trade under your own ABN (Australian Business Number, the identifier you quote on invoices). It sees one person with one taxable income.
That taxable income is your assessable income (everything the tax law counts as income, from gig fees to streaming royalties to bank interest) less your allowable deductions. Deductions matter here because they come off the top before any rate is applied. A guitar bought for paid work, a camera body, software subscriptions and travel to a shoot can all reduce the figure the brackets are applied to, depending on your circumstances and records.
Companies sit under a different, separate set of company tax rates, which is why structure comes up once a creative business grows. That decision turns on far more than the headline rate, including how profits get to you personally, so it is one to work through with an adviser before changing anything.
The brackets below apply from 1 July 2026 to 30 June 2027, assuming you are an Australian resident for the full year and entitled to the full tax-free threshold (ATO, 2026):
Non-residents get no tax-free threshold and pay a different rate scale, while part-year residents get a reduced threshold, so different rates generally apply to touring artists and anyone who arrived or left mid-year, and a registered tax agent can confirm how this applies to you.
The bottom rate is new. It dropped from 16% to 15% on 1 July 2026, and the ATO confirms a second stage that takes it to 14% from 1 July 2027, now legislated (ATO, 2026). One percentage point on the band between the tax-free threshold and $45,000 works out to up to $268 a year for anyone whose taxable income reaches the 30% bracket. Not a fortune, but it is the reason a 2025-26 calculator will overstate what you owe this year.
None of those figures includes the Medicare levy of 2%, which is charged on top of income tax (ATO, 2026). People on low incomes pay a reduced levy or none at all. The ATO has not yet published the 2026-27 low-income thresholds for the reduction, so any figure you see quoted for this year is a guess. Last year's thresholds are not this year's.
Higher earners can also face the Medicare levy surcharge, a separate charge that applies above certain income thresholds to people who don't hold appropriate private hospital cover. It is on top of the 2% levy, not part of it. The table further down leaves the surcharge out, so the effective rate at the $120,000 and $220,000 levels could be higher than shown if you're uninsured.
Your marginal tax rate is the rate on your next dollar. Your average tax rate is total tax divided by total taxable income. Confusing the two is the most common reason creatives either panic about tax or badly underestimate it.
Take a simplified illustration with round hypothetical numbers: a sole trader with $60,000 of business profit and no other income in 2026-27. Income tax is $8,520, which is the bracket base plus 30% of the $15,000 above $45,000. That is an average rate of 14.2%, even though the marginal rate is 30%. Add the Medicare levy of $1,200 and the total before any offsets is $9,720. Real outcomes depend on individual circumstances, offsets and deductions.
Moving into a higher bracket never makes your whole income taxed at the higher rate. Only the dollars above the threshold are. Turning down a gig because it "pushes you into the next bracket" makes no sense on the numbers.
The table below shows how total tax and the average rate climb at other income levels, plus what setting aside that amount evenly across the year would look like per week. It is a simplified illustration that assumes a full-year resident paying the full Medicare levy, with no offsets applied.
| Taxable income (2026-27) | Income tax | Medicare levy | Total | Average rate | Weekly set-aside |
|---|---|---|---|---|---|
| $40,000 | $3,270 | $800 | $4,070 | 10.2% | about $78 |
| $80,000 | $14,520 | $1,600 | $16,120 | 20.2% | $310 |
| $120,000 | $26,520 | $2,400 | $28,920 | 24.1% | about $556 |
| $160,000 | $40,270 | $3,200 | $43,470 | 27.2% | about $836 |
| $220,000 | $64,870 | $4,400 | $69,270 | 31.5% | about $1,332 |
Notice what the table says about the popular "put away 25-30%" rule of thumb. At modest incomes it over-saves by a wide margin, which starves a creative business of cash for gear and marketing. At the top end it falls short. A flat percentage ignores the brackets, which is the whole point of a progressive system.
Most creatives we talk about here don't live on one income stream. They teach a few days a week, work casual shifts, or hold a part-time design job, then gig, shoot or freelance on top. This is where the sole trader tax rate bites hardest, and where most explainers go quiet.
Your employer withholds tax from your wage as if that wage were your only income. It knows nothing about your Saturday night gigs or your illustration commissions. So the business profit lands on top of a wage that has already used up the tax-free threshold and the cheaper brackets.
A simplified illustration with round hypothetical numbers: $50,000 of wages plus $20,000 of side-gig profit gives taxable income of $70,000 and income tax of $11,520. The wage alone would attract $5,520. The side gig therefore adds $6,000 of income tax plus $400 of Medicare levy, so every extra dollar of gig profit costs 32 cents. Your circumstances will change the result.
Your gig money doesn't get its own bracket. It sits on top of everything else you earn, so it is taxed at the highest rate you have already reached.
That $6,400 doesn't appear on any payslip. It surfaces at tax time as a bill, which is exactly the "surprise" so many creatives describe. Setting aside 32 cents from every gig dollar in this example would have covered it, about $123 a week if the profit arrived evenly.
The small business income tax offset (also called the unincorporated small business tax discount) is the one concession aimed squarely at sole traders, and it is badly under-explained. From the 2020-21 income year onwards, it is 16% of the income tax that relates to your net small business income (ATO, 2025). Since the 2016-17 income year, the offset has been capped at $1,000 a year, and to be eligible a business must have aggregated turnover under $5 million (ATO, 2025).
You don't calculate it yourself. The ATO works it out from the figures in your tax return, which is why getting the business income and deductions labels right matters.
Back to the $60,000 sole trader from earlier, where all income is business profit. Sixteen per cent of the income tax comes to about $1,363, so the cap applies and the offset is $1,000. Income tax plus Medicare levy then falls to $8,720 in that simplified illustration. In the wage-plus-side-gig example, only the tax relating to the gig profit counts, so the offset would be smaller.
A few rules trip people up:
Where the offset is relevant, the ATO notes you can vary your PAYG instalments to allow for it if you haven't yet lodged your return.
One offset you won't see: the old low and middle income tax offset, the one people remember as a lump at tax time. The 2021-22 income year was its last, and it isn't available from 2023 onwards (ATO, 2025). If your expected refund is built on it, the expectation needs updating.
PAYG (pay as you go) instalments are prepayments of your expected income tax. They are not an extra tax. Whatever you pay through the year is credited against your final assessment when you lodge.
The ATO enters a sole trader into the system automatically when their latest return shows instalment income (gross business and investment income, excluding GST and capital gains), tax payable and estimated (notional) tax above set thresholds, and it suggests voluntary entry for people new to business (ATO, 2024). Most people pay quarterly, alongside their BAS (business activity statement, the form used to report GST and instalments).
Instalments smooth cash flow. They don't fix it. Because no one withholds tax from ABN income, the money for each instalment has to come from somewhere, and that somewhere is your own discipline. The ATO's own sole trader example divides a $20,437 yearly instalment by 52 and puts aside $393.02 each week, so the cash is ready when the BAS arrives (ATO, 2024).
Some sole traders set aside the tax share of each invoice payment, gig fee and royalty deposit in a separate account when it arrives, generally using their expected marginal rate plus the Medicare levy as a guide rather than a flat percentage. A registered tax agent can confirm how this applies to your circumstances. Lumpy income makes this more important, not less: a big festival month or a fat licensing cheque is taxed at the rate it reaches, and the bill turns up long after the money feels spent.
Income tax, the Medicare levy, the offset and PAYG instalments are all federal. They work identically whether you play in Penrith, Perth or Hobart.
This article is general information only, reflects the rules at the time of writing, and does not take your personal circumstances into account.
If your tax feels more feedback than melody, give the Amplify 11 team a shout on (02) 4715 1000 or at [email protected]. We'll help tune your numbers so tax time hits the right note.
No. The resident brackets and the tax-free threshold assume you are an Australian resident for tax purposes for the whole income year. Non-residents and part-year residents are taxed under different rules, and residency for tax is not the same as citizenship or visa status. A registered tax agent can look at your circumstances and confirm which rates generally apply to your income.
Generally no. If you are registered for GST, the GST portion of your invoices belongs to the ATO and is reported and paid through your BAS. It is not part of your assessable income for income tax. That is also why GST is excluded when the ATO measures instalment income. Keeping GST in a separate account from your income tax savings can make both bills easier to manage.
Holding a job does not by itself rule you out. The offset relates only to the share of your income tax connected with net small business income, so your wages do not attract it. Other eligibility rules still apply, including the turnover limit and the rules about business losses and personal services income. The ATO calculates the amount from your tax return.
The ATO lets taxpayers vary their instalment amount or rate if they expect their tax for the year to be lower than the ATO's estimate. Variations need to be based on a reasonable estimate, because varying too low can attract a general interest charge if it turns out to be wrong. A registered tax agent can review your figures before you lodge a variation.
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