How to Pay Yourself as a Sole Trader in Australia

You’ve done the work, sent the invoices, and money’s landing in your account. But now what — how do you actually pay yourself? If you’re a sole trader, it’s not as straightforward as getting a payslip every fortnight.

The good news: it’s simpler than you might think. Here’s how to pay yourself properly, stay on the right side of the ATO, and avoid the mistakes that catch people out.

You take drawings, not a salary

This is the first thing to get your head around. As a sole trader, you and your business are the same legal entity. You can’t employ yourself, which means you can’t pay yourself a wage or salary the way a company director might.

Instead, you take owner’s drawings — you simply transfer money from your business account to your personal account. That’s it. There’s no payslip, no PAYG withholding, and no superannuation obligation on those drawings.

The key distinction: drawings aren’t a business expense. You can’t claim them as a deduction. They’re just you moving your own profit from one pocket to another. When tax time rolls around, you pay income tax on your total business profit for the year — regardless of how much or how little you actually withdrew.

How much should you pay yourself?

This is where most sole traders get unstuck. The temptation is to spend everything that comes in, but that’s a fast track to a nasty surprise at tax time.

A good approach is to work out a regular, consistent amount to draw — either weekly, fortnightly, or monthly. Treat it like a salary even though it technically isn’t one. This does a few things: it forces you to budget, gives you predictable personal income, and keeps enough cash in the business to cover expenses and tax.

A practical formula:

Work out your average monthly revenue
Subtract your business expenses (rent, subscriptions, materials, etc.)
From what’s left, set aside 25–30% for tax (income tax, Medicare levy, and GST if you’re registered)
What remains is what you can safely draw

Say you’re a graphic designer bringing in $8,000 a month after expenses. Set aside $2,200 for tax (about 28%), and you’ve got roughly $5,800 to draw. That’s your “salary.”

Review this every quarter. If business picks up, you can increase your drawings. If it slows down, pull back early rather than scrambling later.

Set aside money for tax — seriously

This deserves its own section because it’s the number one mistake sole traders make. When you’re an employee, your employer withholds tax before you ever see the money. As a sole trader, no one does that for you. Every dollar hits your account untaxed.

Open a separate savings account specifically for tax. Every time you get paid, move 25–30% straight into it. Don’t touch it. Pretend it doesn’t exist until your tax return is due.

If your sole trader income is your main source of earnings, the ATO may put you on PAYG instalments — quarterly prepayments towards your expected tax bill. This actually works in your favour because it stops the debt from ballooning into one massive year-end payment. You can also opt into PAYG instalments voluntarily if you want to stay ahead of it.

Don’t forget the Medicare levy (2% of your taxable income) and, if you have a HELP or HECS debt, the student loan repayment — these come out of your total income at tax time.

Separate your business and personal finances

Legally, you don’t have to have a separate business bank account as a sole trader. But practically, you absolutely should. Mixing personal and business transactions in one account is a recipe for confusion, missed tax deductions, and potential ATO scrutiny.

Set up three accounts:

Business transaction account — all income goes in, all business expenses go out
Tax savings account — your 25–30% set-aside for tax obligations
Personal account — where your drawings land

This structure keeps everything clean. You can see exactly what the business earned, what it spent, and what you took out. When your accountant (or your accounting software) needs to reconcile at year’s end, it’s all there in black and white.

What about superannuation?

Here’s something many sole traders don’t realise: you’re not legally required to pay yourself super. The Superannuation Guarantee — the one that requires employers to pay 12% on top of wages — only applies to employees. As a sole trader, you’re not an employee.

But just because you don’t have to doesn’t mean you shouldn’t. If you’re not putting money into super, you’re not building your retirement savings. And the tax benefits are worth knowing about: personal super contributions are generally tax-deductible, which can reduce your taxable income.

Even setting aside a modest amount — say $200 or $500 a month — adds up significantly over time. Talk to your accountant or super fund about the best approach for your situation. If you employ other people in your sole trader business, keep in mind that payday super changes coming from 1 July 2026 will require you to pay their super at the same time as their wages.

Common mistakes to avoid

Recording drawings as a wage expense. This is a classic one. If you categorise your personal drawings as wages in your accounting software, you’re inflating your expenses and understating your profit. The ATO won’t be pleased. Drawings should be recorded as owner’s drawings or equity withdrawals — never as a business expense.

Not tracking drawings at all. Some sole traders just pull money out whenever they need it without recording a thing. Come tax time, they can’t reconcile their accounts and end up guessing. Keep a clear record of every transfer from your business account to your personal account.

Taking too much, too soon. A big invoice comes in and the temptation is to transfer the lot. But that payment might need to cover GST, income tax, and next month’s expenses. Stick to your formula and only draw what you’ve planned for.

Ignoring it until tax time. If you don’t have a system for setting aside tax money throughout the year, you’ll end up with a bill you can’t pay. The ATO offers payment plans, but interest applies. It’s far better to stay ahead of it.

Next steps

Paying yourself as a sole trader comes down to three things: take regular, consistent drawings from your business profit; set aside 25–30% for tax before you touch anything; and keep your business and personal finances cleanly separated.

If you’re just starting out, check out our guides on registering for an ABN and choosing the right business structure. And if you’re wondering whether it’s time to switch to a company structure for better tax outcomes, that’s worth a conversation with your accountant once your profit consistently exceeds $90,000 or so.

Getting your payment structure right from day one means fewer surprises, cleaner books, and more confidence that you’re keeping what you’ve earned.