Sole Trader Tax Return: Working on an ABN All Year With No Tax Put Aside?

Working on an ABN and haven't paid any tax? How to work out what you will owe

This is the most common question we see from new sole traders and subcontractors: "I've been paid on my ABN all year, nobody took tax out, how much will I owe?" The short answer is that ABN pay is before tax. When you were an employee, your boss withheld tax from each pay and sent it to the ATO. On an ABN nobody does that for you, so income tax, the Medicare levy and (if you are registered, or should be) GST all have to come out of the money that landed in your account. The ATO will not tell you the number until you lodge, but you can get a fair estimate now.

A rough estimate in four steps

1. Add up everything you invoiced between 1 July and 30 June. If you are registered for GST, take the GST out first, because that part was never your income and is paid over on your BAS.
2. Subtract genuine business expenses. The ones most people on an ABN have not written down: ute or car running costs (business share, logbook or cents per km), tools and equipment, materials, phone and internet (business share), public liability and income protection insurance, licences and tickets, protective clothing, accounting fees and deductible super contributions you made for yourself.
3. What is left is your taxable income. Apply the individual resident tax rates to it (the first $18,200 is tax free, then the rate steps up with income) and add the Medicare levy of 2%. If you also had a wage job during the year, the business profit sits on top of that salary and is taxed at your higher marginal rate.
4. Take off anything already paid, such as PAYG instalments or tax withheld from a wage. In a first ABN year that is usually nothing, so the whole amount is the bill.

Worked example: a tradie subcontractor registered for GST invoices $99,000 for the year, which is $90,000 of income plus $9,000 of GST. After $20,000 of genuine expenses, taxable income is $70,000. Using the resident rates that applied for 2024-25, income tax plus the Medicare levy comes to roughly $13,000. On top of that, the $9,000 of GST collected, less GST credits on business purchases, is owed through the BAS. Rates change, so check the ATO's current individual rates before you rely on a number, but the shape of the sum is the same every year.

Going forward, a simple habit stops this happening again: move 25 to 30 cents of every dollar invoiced into a separate account, plus the GST if you are registered, and leave it there until the bill arrives.

How the first year works, and the year two surprise

In your first year on an ABN the ATO has nothing to go on, so there are no instalments and the whole year's tax arrives as one bill after you lodge. Once that first return shows business tax payable, the ATO generally enters you into PAYG instalments. In year two you pay quarterly instalments towards that year's tax while still finding the money for year one's bill. Plan for both, and if your income has dropped the instalments can be varied with evidence.

If you cannot pay the whole bill at once

Lodge on time anyway. Failure to lodge penalties attach to the lodgment, not the payment, and lodging late only adds to the problem. Once the return is in, the ATO will usually agree to a payment plan for a sole trader who engages early, with interest accruing on the balance until it is cleared. See ATO payment plan help if the bill is already overdue. If turnover has passed the GST threshold of $75,000 and you never registered, raise that at the same time, because it is cheaper to fix now than after an ATO review.

How a sole trader tax return usually works

A solid process starts with a quick position check: your ABN status, GST registration, software or spreadsheet setup, prior year returns and BAS history, PAYG instalments, and any ATO letters or overdue items.

From there, the work splits into three parts:

• Data and records: collect bank statements, sales and expense records, payroll and super, vehicle logbook or travel records, and asset purchases.
• Prepare and review: reconcile income and expenses, apportion mixed‑use costs, calculate depreciation, include PAYG instalments and government incentives where applicable, then review for accuracy.
• Lodge and follow‑up: lodge the individual return with the business schedule, address ATO queries fast, and plan for next year’s BAS/PAYG/super workflow.

What you can claim as a sole trader

Only claim the business‑use portion and keep evidence for every claim. Typical deductions include:

• Operating costs: advertising, accounting fees, bank and merchant fees, software subscriptions, domain and hosting, professional memberships.
• Vehicle and travel: logbook method (business‑use percentage of running costs and depreciation) or cents‑per‑km (subject to caps). Keep fuel/maintenance records or a valid logbook.
• Home‑based business: running expenses (electricity, internet, phone, cleaning) and, where eligible, occupancy costs. Use an accepted ATO method and maintain records.
• Tools and equipment: immediate deduction or depreciation depending on current ATO thresholds and asset type. Check the latest thresholds each year.
• Phone and internet: apportion business use with reasonable, supportable percentages.
• Insurance: public liability, professional indemnity, business insurance and relevant policy costs.
• Super: personal super contributions may be deductible if you lodge a valid notice of intent with your fund and meet ATO rules.

If you buy or sell assets, or use crypto or shares for business, ensure records are comprehensive. For capital items and CGT, see Capital Gains Tax Help.

Buying a car, ute or van: depreciation and the GST credit

This is one of the most common questions sole traders bring to us, and it is really two separate claims. If you are registered for GST, the GST credit on the purchase is claimed on your BAS, not your tax return, and only for the business-use percentage. For passenger cars the credit is capped by the ATO car limit for that year, so the credit on a more expensive car is less than one eleventh of the price. Many utes and vans are not treated as cars for this purpose, so check which rule applies before you lodge.

Depreciation is claimed on your income tax return. The depreciable cost is the price less any GST credit you claimed, multiplied by the business-use percentage from your logbook. Depending on the rules in force in the year you bought it and whether you use small business simplified depreciation, the vehicle may be deductible in full in that year (again limited by the car limit for cars) or written off over its effective life. If you use the cents-per-kilometre method instead, depreciation is already built into the rate and cannot be claimed separately.

A tax agent will ask for the tax invoice or contract, finance documents if the vehicle is under a loan or hire purchase, the date it was first used in the business, your logbook or a supportable estimate of business use, and confirmation of your GST registration. Private use must be excluded from both claims.

Deadlines, BAS and PAYG instalments

• Annual return: financial year is 1 July-30 June. Self‑lodgers are usually due 31 October. Registered agents can access later dates on the ATO lodgment program.
• GST and BAS: if GST‑registered, lodge BAS monthly or quarterly to report GST collected and credits. BAS due dates differ from your annual return.
• PAYG instalments: the ATO may require instalments during the year. These reduce your end‑of‑year bill and are credited on your return.
• Super: if you employ staff, pay super guarantee by the quarterly cut‑offs. Personal contributions for yourself must meet timing and notice requirements to be deductible.
• Penalties and interest: late lodgments or payments can attract penalties and GIC. Engage early if you need a plan.

Software, records and evidence

Whether you use Xero, MYOB, QuickBooks or spreadsheets, the ATO expects accurate records for at least five years. Bank feeds and digital receipts help you substantiate claims and speed up review.

• Bank reconciliation: reconcile all business accounts, including PayPal, Stripe and Square.
• Receipt capture: store legible receipts with supplier, date, amount and purpose.
• Logbook/travel: maintain a valid 12‑week logbook or reliable trip tracking if claiming vehicle costs.
• Asset register: track asset purchases, disposals and private use adjustments.

If your books need attention before tax time, see Bookkeeping Services or BAS Agent Services.

Choosing the right help

Sole trader tax return checklist

1. Confirm ABN, GST status and prior year lodgments.
2. Export bank statements and reconcile all accounts.
3. Collect sales invoices and expense receipts; apportion any mixed‑use costs.
4. Update your asset register; review depreciation eligibility.
5. Compile vehicle logbook or travel records if claiming car expenses.
6. Download BAS history and PAYG instalments from ATO Online.
7. Consider personal super contributions and required notices.
8. Prepare and review the business schedule; resolve anomalies.
9. Lodge on time and plan cash flow for any tax payable.

When to consider a different structure

If profits are rising, you’re taking on employees, or you need asset protection, compare staying a sole trader with a company or trust. Start with the commercial goals, then consider tax outcomes, admin load and costs. Explore New Business Accountant or Tax Accountant for Companies to weigh options.

Best next steps

Write down your immediate outcome: on‑time lodgment, a clean set of books, maximised eligible deductions, or a plan for BAS and PAYG. Then brief a provider against that outcome-clarity here reduces cleanup later.

Browse related pages to narrow the path:

• Tax Accountant for the full tax services hub.
• Tax Accountant for Small Business if you’re growing beyond a sole trader.
• Bookkeeping Services if records need work before tax time.
• BAS Agent Services if GST/BAS is the immediate pressure point.