With the 2025–26 financial year having ended on 30 June, tax time is now in full swing. For sole traders in Australia, tax obligations differ significantly from those of standard employees or incorporated companies.
As a sole trader, you do not lodge a separate business tax return. Rather, your business income and expenses are reported alongside your personal income on your own tax return under a dedicated business schedule. The ATO now uses Taxable Payments Annual Report (TPAR) data to pre-fill eligible contractor payment information into supported tax returns for sole traders and other individuals in business, making accurate business records more important than ever.
Below is a practical, step-by-step guide to preparing, personalising, and lodging your sole trader tax return for the 2025–26 financial year.
1. Gather Your Records and Check Pre-Fill Data
Because we are now in August, most third-party data from banks, health funds, and clients should be available in the ATO’s systems. However, as a sole trader, you cannot rely entirely on pre-filled data. You must gather and reconcile your own business records.
Essential Documentation Checklist
- Income Records: Issued invoices, daily sales records and point-of-sale summaries.
- Expense Receipts: Tax invoices and receipts for company purchases.
- Motor Vehicle Logbook: If you are claiming car expenses under the logbook method, you must have your 12-week logbook in order and your 30 June 2026 odometer reading recorded.
- PAYG Instalments: Summary of any PAYG installments you paid towards your tax during the year.
- Superannuation: IF you paid personal super contributions and wish to claim a deduction, you must have sent a Notice of Intent to claim form to your fund and received a written acknowledgement before lodging.
Utilising professional outsourced bookkeeping services in Australia keeps your business expense receipts, vehicle logs, and customer invoices structured as they occur.
2. Understand Personal Services Income (PSI)
Before your lodgement starts, you must figure out whether your business Income is Personal Services Income (PSI).
PSI applies generally where income is a reward for your efforts or abilities instead of for selling goods/using business assets.
If your earnings are PSI, the ATO has regulations restricting what deductions you are able to claim. For instance, you generally cannot claim rent or mortgage interest for a home office. Your tax software or myTax will ask you a series of questions to determine if the PSI rules apply to your 2025–26 return.
3. Step-by-Step Guide to Lodging Through myTax
If you self-lodge online through the government’s myTax portal, you must personalise your return to open the right business sections. Follow this procedural sequence:
- Sign in to myGov: Log in to your myGov account on the official site or app and select the Australian Taxation Office link for ATO.
- Open ATO Online Services: Select your 2025-26 tax return from the tax section of the ATO home screen.
- Personalise Your Return: This is the most important step for sole traders. Check the box on the personalisation screen that says “You were a sole trader or had business income or losses”
- Select Your Business Sections: A dropdown appears if you check the sole trader box. Select Business income or losses and Business and professional items to get the correct forms created.
- Complete the Business Schedule: Enter your main Business activity and Australian business Number (ABN). Then enter your gross business income and business expenses (motor vehicle, depreciation, rent and supplies).
- Review PAYG Instalments: If you paid PAYG installments during the year, check the ATO has credited these payments against the summary of your estimated tax liability.
- Submit the Return: Review the final estimate, tick the declaration box to verify that all info is correct and true and click Submit.
Watch out for common errors including claiming ineligible deductions, missing income or relying on incomplete pre-filled information before lodging. Our guide to common tax return mistakes explains what to check before you submit.
4. Claim Eligible Sole Trader Deductions
You can deduct most business expenses to lower your tax liability. Three golden rules are observed by the ATO: The cash needs to have been used for your business and not for private use, and you must produce written proof.
Common Deductions to Review
- Working from Home (WFH): Use the Fixed Rate Method (70 cents an hour, with a continuous diary or timesheet of hours worked) or the Actual Cost Method (calculate your actual electricity and internet costs based on work-related usage, plus occupancy costs like rent or mortgage interest apportioned by the floor area of your dedicated office space, and depreciation on office equipment).
- Instant Asset Write-Off: For 2025–26, businesses with aggregated turnover under $10 million can immediately deduct eligible assets costing less than $20,000 each, as long as the asset was first used or installed ready for use by 30 June 2026. Assets at or above that threshold go into the small business pool instead.
- Operating Expenses: Software subscriptions, company insurance, marketing, and professional accounting fees are generally fully deductible.
Accurate record-keeping is particularly important in healthcare accounting, where sole practitioners often need to reconcile Medicare receipts, private billing income and business expenses before lodging their tax returns.
5. Understand Key Deadlines and Penalties
Failure to lodge a tax return or register an extension by the legislated cutoff date can result in Failure to Lodge (FTL) penalties and General Interest Charge (GIC) on unpaid debts.
The 2026 Lodgement Calendar
- Self-Lodger: 2 November 2026: Because the standard 31 October deadline falls on a Saturday this year, the self-lodgement window is extended to the next business day.
- Tax Agent Registration: 31 October 2026: To access extended lodgement deadlines, you generally need to engage a registered tax agent before 31 October and already be on their client list.
- Extended Agent Program: 15 May 2027: The final deadline for most sole trader returns managed through an agent, provided your previous lodgements are up to date, and you have a clean compliance history.
For more details on the 2026 lodgement dates and agent lodgement program, visit the ATO Registered Agent Lodgment Program.
6. What Happens After You Lodge
Once submitted, track your tax return through the ATO online services portal.
When processing is complete, the ATO issues a formal Notice of Assessment (NOA). For most online returns, refunds are generally issued within about two weeks where no further review is required. If your NOA indicates that you owe tax (often the case for sole traders whose PAYG installments did not cover their final liability), the payment due date will be clearly stated on the notice.
If you discover an error after submitting, do not attempt to lodge a completely new tax return. Wait until you receive your Notice of Assessment, then log back into myTax and select the ‘Amend’ option.
Optimising Your Sole Trader Finances
Lodging a sole trader tax return is straightforward when your ledgers are clean and reconciled. However, spending hours sorting through mixed personal and business receipts in August increases the risk of missed deductions and ATO scrutiny.
Successful sole traders create structured backend workflows to automate processes and to ensure reporting matches official records. Having organised records year-round means you can replace the tax-time rush with a systematic review of pre-reconciled statements. Contact our team to discuss supporting your ongoing financial administration and tax preparation.