Australia Contractor Tax Calculator (Sole Trader, 2025-26)

Worked example

Scenario: Alex is an IT contractor working as a sole trader on an ABN. Alex bills $800 per day, works 220 billable days in the year and has $15,000 of deductible business expenses (software, insurance, laptop, accountant, home-office costs).

Step 1 - Annual gross income
$800 x 220 = $176,000

Step 2 - Taxable income
$176,000 - $15,000 expenses = $161,000

Step 3 - Income tax (2025-26 resident brackets)

• $0 - $18,200: nil = $0
• $18,201 - $45,000: 16% x $26,800 = $4,288
• $45,001 - $135,000: 30% x $90,000 = $27,000
• $135,001 - $161,000: 37% x $26,000 = $9,620

Income tax = $4,288 + $27,000 + $9,620 = $40,908

Step 4 - Medicare levy
2% x $161,000 = $3,220

Step 5 - Total tax and take-home

• Total tax = $40,908 + $3,220 = $44,128
• After-tax income = $161,000 - $44,128 = $116,872

That is an average tax rate of about 27.4% of taxable income. Because Alex's turnover of $176,000 is well above $75,000, Alex must also be registered for GST and charge 10% GST ($80 per day) on top of the $800 day rate, then remit that GST to the ATO. The GST is not income - it does not change the tax figures above.

How contractor tax works on an ABN in 2025-26

As an Australian contractor operating as a sole trader, you are not a separate legal entity from your business. You trade under your own name and Australian Business Number (ABN), and all of your net business profit is taxed as your personal income at the ordinary resident marginal rates. There is no separate company tax and no 30% company rate to worry about - your contracting profit simply flows onto your individual tax return and is taxed together with any other income you earn.

For the 2025-26 year the resident marginal rates are: nil on the first $18,200, 16% from $18,201 to $45,000, 30% from $45,001 to $135,000, 37% from $135,001 to $190,000, and 45% above $190,000. On top of that most taxpayers pay the 2% Medicare levy on their taxable income. The levy is nil if your income is below the low-income threshold (around $28,011 for a single person), phases in at 10 cents per dollar just above that, and reaches the full 2% by roughly $35,013 - so any contractor earning a normal full-time income pays the complete 2%.

The single most important difference from being an employee is that no tax is withheld from your invoices. When a client pays your day rate, they pay the full amount with nothing taken out. You are personally responsible for setting that tax aside and paying it later, either as a lump sum when you lodge, or through PAYG instalments once the ATO enters you into that system. A common mistake among new contractors is spending gross income as though it were take-home pay and then facing a large, unexpected bill.

This calculator turns your day (or hourly) rate into an annual figure, subtracts your business expenses to find taxable income, then applies the brackets above plus the 2% Medicare levy. The result is your estimated income tax and after-tax income. It assumes you are an Australian tax resident for the whole year, that you are a sole trader rather than a company or trust, and that your contracting profit is your only income. It does not include HELP/HECS study loan repayments, the Medicare levy surcharge (which applies to higher earners without private hospital cover), the private health rebate, or any tax offsets - so treat the output as a solid planning estimate rather than a final assessment.

Day rates, billable days and expenses that lower your tax

The biggest driver of your result is not the tax rates - it is how many days you actually bill. A $800 day rate looks like $208,000 across a 260-weekday year, but almost no contractor bills every weekday. Annual leave, public holidays, sick days, training, unpaid admin time and the gaps between contracts all eat into billable days. Realistic full-time contractors often bill somewhere between 200 and 230 days. Dropping from 260 to 220 days at $800 lowers gross income from $208,000 to $176,000 - a $32,000 difference that changes your tax and your take-home substantially. Being honest about billable days is the difference between a useful estimate and wishful thinking.

If you charge by the hour rather than by the day, convert first: multiply your hourly rate by the hours in a typical billing day (for example $95 x 8 = $760) and enter that as your day rate. If your work is genuinely priced per project, estimate the equivalent day rate by dividing a project fee by the days it realistically takes.

The other lever is deductible expenses. As a sole trader you are taxed on profit, not turnover, so every legitimate business cost reduces your taxable income. Common contractor deductions include professional indemnity and public liability insurance, accounting and bookkeeping fees, business software and subscriptions, a portion of your home internet and phone, home-office running costs, professional development and industry memberships, work-related travel, and the decline in value (depreciation) of equipment such as laptops. Under the general rules you can immediately deduct assets costing less than $300 and depreciate more expensive items over time.

Two points are easy to get wrong. First, if you are registered for GST you claim expenses net of GST - you record the GST-exclusive amount as a deduction and claim the GST portion separately as an input tax credit on your BAS. Second, expenses must be genuinely business-related and you must keep records; private or dual-purpose costs need to be apportioned. Entering a realistic expenses figure in this calculator gives a truer picture than assuming zero, because for many contractors deductions of $10,000 to $20,000 a year are normal and knock a meaningful amount off the tax bill.

Note that superannuation is optional for sole traders - you are not required to pay yourself super - but any personal contributions you claim can be a further deduction, which this calculator does not model.

GST at $75,000 and PAYG instalments explained

Two obligations catch contractors by surprise, and both are tied to specific dollar thresholds you should know before you start.

GST registration at $75,000. You must register for GST once your annual turnover reaches $75,000 or more, or as soon as you expect it to. Most full-time contractors cross this threshold easily. Registration means you add 10% GST on top of your fees - a $800 day rate becomes $880 - and you report and pay that GST to the ATO on a Business Activity Statement (BAS), usually quarterly. The GST you collect is never your money and never counts as income; you are collecting it on the government's behalf. In return you can claim back the GST included in your business purchases as input tax credits. If you earn under $75,000 you can register voluntarily, which lets you claim those credits, but it also adds BAS paperwork - so weigh it up. This calculator works in GST-exclusive figures, so GST does not change the income tax result; it is a separate cash flow you manage through your BAS.

PAYG instalments. Because no tax is withheld from your invoices, the ATO uses Pay As You Go (PAYG) instalments to collect your tax progressively rather than in one hit. You are automatically entered into the system when your business/instalment income is $4,000 or more and the tax payable on your latest assessment is $1,000 or more. Once you are in, you pay estimated tax in advance - generally quarterly, due 28 days after the end of each quarter - and those payments are credited against your final tax bill when you lodge. If your notional tax is less than $8,000 and you are not registered (and not required to be registered) for GST, you may be able to choose an annual instalment instead of quarterly. Note that most full-time contractors are above the $75,000 GST threshold and so must stay on quarterly instalments.

In your first year of contracting you usually pay nothing in instalments because the ATO has no prior assessment to base them on - which is exactly why year one can produce a shock. You earn a full year, spend it, then receive both a tax bill for that year and a request to start paying instalments toward the next. The practical defence is to open a separate savings account and move a fixed share of every payment into it as it arrives. For a contractor on around $160,000 taxable income, an average tax rate near 27-28% means setting aside roughly 30% of your net-of-GST income comfortably covers income tax and the Medicare levy, with a buffer. Treat the calculator's total-tax figure as your annual savings target and divide it across the year.

Contracting versus PAYG employment: the real comparison

A day rate almost always looks bigger than a salary, but the two are not comparable until you strip the contract rate back to what actually lands in your pocket. When you weigh up a contract against a permanent role, adjust for the things an employer normally provides that a sole trader must fund themselves.

Superannuation. Employees receive compulsory super on top of their salary (12% in 2025-26). As a sole trader, no one pays super for you. If you want the same retirement outcome, you fund it from your own day rate, so mentally set aside an amount equivalent to super before comparing head-to-head.

Paid leave. Employees are paid for annual leave, public holidays, sick days and often carer's leave. Contractors are paid only for days billed - every day off is a day of zero income. This is why billable days matter so much: a contractor's headline rate has to cover roughly four to six weeks a year of unpaid time that a salaried worker gets paid for.

Insurance and overheads. Professional indemnity and public liability cover, income protection, equipment, software and your own admin time all come out of your rate. Some are deductible, which softens the blow, but they are still real cash costs an employee rarely thinks about.

The tax itself is the same. A common myth is that contractors pay a different, higher rate of tax. They do not. A sole trader and an employee on the same taxable income pay identical income tax and the same 2% Medicare levy - the brackets in this calculator apply to both. What differs is timing and responsibility: the employee has tax withheld automatically each pay, while the contractor sets it aside and pays via PAYG instalments and their return.

A useful rule of thumb: to genuinely match a salary package, a contract day rate needs to cover the salary plus super, plus unpaid leave, plus your own overheads. That is why sensible contract rates sit well above the pro-rata salary equivalent - the premium is not extra profit, it is compensation for the benefits and security you give up. Run your day rate and realistic billable days through this calculator to see your true after-tax income, then compare that figure - not your gross turnover - against a salary offer. Beware, too, of the personal services income (PSI) rules and state payroll-tax contractor provisions, which can affect how some contractors are taxed; if most of your income comes from your own labour through one main client, it is worth checking those rules or asking an accountant before assuming full sole-trader treatment.

Frequently asked questions