How to Pay Yourself as a Sole Trader in Australia

Can a sole trader pay themselves a wage?

How to pay yourself as a sole trader starts with one fact: you cannot pay yourself a wage. As a sole trader you are the business owner, not an employee of it, and the ATO states that any nominal payment of a salary or wage to you is considered a distribution of profit. What you do instead is transfer money from the business to yourself as owner's drawings.

A sole trader must also lodge a tax return, even if income is below the tax-free threshold. Business income is reported in your own return, which is why the profit of the business, rather than the amount you happen to draw, drives your tax.

What are owner's drawings?

Drawings are simply transfers from the business account to your personal account. They are not an expense of the business and they are not payroll, so they do not reduce your taxable income. They also do not generate payslips, PAYG withholding or employer super. Record them in your accounting software as owner drawings, so your profit reports stay accurate.

What is a simple routine for paying yourself?

Consistency matters more than precision. A routine that suits many sole traders looks like this:

• Keep business and personal money in separate accounts from the start.
• Each week or month, transfer a fixed draw to your personal account.
• Move a set percentage of each payment received into a tax and super account.
• If GST registered, move the GST component into its own account.
• Review the numbers with your accountant each quarter and adjust the draw.

Does this apply to partners as well?

Yes. The ATO states that if you operate as a partnership you also cannot pay yourself a salary or wages, because you are a partner rather than an employee. Any nominal payment is considered a distribution of profit.

How much should a sole trader draw?

There is no fixed rule. A practical method is to work out profit, set aside what is needed for tax, super and GST, and then draw a steady amount from what remains.

Illustrative example only, not a tax estimate: in one quarter a sole trader invoices $30,000 and has $11,000 of business expenses, leaving $19,000 of profit. After setting aside $4,000 for tax and super, as estimated with their accountant, $15,000 remains. They draw $5,000 a month. A steady draw makes household budgeting easier than drawing whatever the bank balance allows.

If you are registered for GST, the GST you collect is not yours to spend. Keep it in a separate account until your business activity statement is due.

How do tax and PAYG instalments work for sole traders?

PAYG instalments are regular prepayments of the expected tax on your business and investment income. The ATO works out your instalment amounts using information from your latest tax return, and they appear on your activity statement. Business.gov.au explains that the ATO places you in the PAYG instalment system if your income is over the relevant threshold when you lodge your return.

Announced in the 2026-27 Federal Budget, from 1 July 2027 businesses are proposed to be able to opt in to monthly PAYG instalments and to vary instalments through approved calculations in business software. This is an announced measure, so check the ATO's current guidance before relying on it.

Can a sole trader pay super for themselves?

Yes, you can choose to. The ATO states that a sole trader can usually claim a deduction for their own super contributions in their personal tax return. Because it is a personal decision rather than an employer obligation, many sole traders neglect it. Build a regular transfer into your routine, in the same way you handle drawings.

When does it make sense to be paid a wage?

If you operate through a company or trust, the ATO says that entity can generally claim a deduction for salaries and wages paid to you. That is the main reason owners consider changing structure as profit grows. It also brings ASIC obligations, a separate ABN, payroll and super reporting. A company paying wages is an employer, and from 1 July 2026 the ATO requires super under Payday Super to be received by the fund within 7 business days after payday.

Do not restructure on tax grounds alone. The 2026-27 Federal Budget announced a proposed minimum 30 per cent tax on discretionary trust distributions from 1 July 2028 and changes to capital gains tax from 1 July 2027. These are announced rather than confirmed measures, so seek advice and check their status before acting.

Would a free 30-minute session help?

We can look at your income, work out a sensible drawing pattern and show you what to set aside. ANH Accounting is a Sydney advisory firm and a Registered Tax Agent (26258346). You are welcome to book a free 30-minute session, with no obligation.