Sole trader guide to the new financial year

According to our latest research, Australian sole traders spend an average of 8 hours a week and $299 a month managing their tax and financial admin. That’s 416 hours and $3,588 a year that could have been better spent elsewhere.

Even worse, sole traders spend an average of 13 hours and $1,000 preparing their tax returns at the end of the financial year. That’s not just a lot of time and money, it’s also precious energy spent just to meet tax obligations.

To help you avoid spending valuable resources on admin this new financial year (NFY), we’ve put together this guide on good financial practices that’ll take some of the stress out of paying taxes. Whether you’re a sole trader veteran or just starting your self-employed journey, here are a few things you can do to save time and money each week, and make lodging your tax return as painless as possible.

Hnry users spend just 2 hours a week on average managing their financial admin. Check out how we can save you time and money.

Know what you need to set aside

As a sole trader, there’s a lot to think about when planning for the year ahead. Not only do you have to calculate and pay your own tax, GST, Medicare levy, and superannuation contributions, you also have to pay yourself, meet your financial and business goals, and set aside enough for a rainy day. Phew!

Spending time now creating a budget could save you from getting stuck down the line. To help you get started, we’ve put together a handy list of all the things you might need to plan for:

What you need to pay the ATO

Let’s start by dealing with the ATO. As a sole trader, you’re responsible for:

• Income Tax - your income tax rate is calculated by adding up all your sources of income (including salary and wages, self-employed income, investment income etc) before applying a standard tax rate.
• GST - If you expect to earn over $75,000 in the next 12 months from your self-employed income (i.e. not including any income from salary or wages) then you are required to register for GST. If you’re already earning over this amount, you need to register for GST, like, now.
• Medicare - Any income you make from self-employment is subject to the 2% Medicare levy.
• Student Loan - If you have an outstanding study or training loan (HELP, VSL, SFSS, SSL, ABSTUDY SSL, or TSL), and you earn over the annual threshold of $54,435 for the 2024/25 financial year, then you’re required to make repayments on that loan.

To avoid a colossal tax headache at the end of the year, the best time to start putting money aside for tax is now. Make sure you’ll be ready when the time comes in a few simple steps:

Step One: Use our Income Tax Calculator to calculate your tax rate, Medicare levy, student loan repayments, and superannuation contributions.

• If you know exactly how much you’ll make this year, our Income Tax Calculator is a simple and accurate way to calculate approximate the amount of money you’ll need to set aside.
• If you don’t know how much you’ll earn, our calculator is a good starting point. Plug in your income from the previous year, and go from there. As your projections for the year change, keep revisiting the calculator to make sure you’re still on track to meet your obligations.
  
  

Step Two: Get to grips with GST

• If you earn or expect to earn over $75,000 in self-employment income in any given 12-month period, you’ll need to register for GST.
• This means charging an extra 10% for your goods and/or services that you then pass on to the ATO. GST for your services is paid by your customers, not by you.

💡 You can reduce your GST bill by claiming back the GST your business has paid when purchasing goods and services. For more information, check out our guide to GST.

Step Three: Make the most of superannuation contributions

• If you make personal contributions to your super fund, you may be able to claim a tax deduction for superannuation contributions up to $30,000. Eligibility for this deduction varies according to personal circumstances however, so it’s best to check the ATO website.
• If you’re a low or middle-income earner, and you make post-tax contributions to your super fund, the government may contribute up to $500 as well, depending on your eligibility.
• That’s easy money being left on the table if you’re not taking advantage of it!
  
  

Step Four: Optimise your Medicare levy

• Did you know that you pay more in Medicare (the Medicare levy surcharge) if you don’t have private patient hospital cover and earn over $97k (or $194k as a family)?
• 💡 If you meet this $97/194k threshold, taking out private patient hospital cover is great option - it provides you with healthcare not covered by Medicare and reduces your Medicare levy!
  

📖 Looking for a way to automate tax calculations? Hnry calculates and pays your tax, GST, and Medicare levy every time you get paid. See how it works.

While that’s a heck of a lot to be thinking about, our budgeting journey doesn’t stop there. Let’s look at what else you should be setting aside funds for planned and unplanned time off work.

Time spent not earning

The best-laid plans of mice and men, right? Despite our best efforts to reach our business goals, life will sometimes get in the way.

You’ll need to make sure you have a rainy day fund to cover both the expected and the unexpected. Get the ball rolling by calculating the total number of days a year you might not be able to work. For example:

1. Public holidays: Australia celebrates seven national public holidays, and each state adds their own to that number.
2. Personal holidays: Are you taking a vacation this year (you absolutely should)? Do you need some time off to refresh and recharge? Give yourself some ‘annual leave’ and factor ‘paid’ time off into your budget!
3. Sick leave: PAYG employees get 10 sick days a year. Even if you don’t need it, knowing you have 10 days worth of income stashed away can make falling ill less stressful.
4. Slow periods: Many industries have slumps in activity at certain points in the year. If you know when yours are, you can compensate by putting more aside during busy periods.

If possible, it’s always best to err on the side of caution and factor in one or two days extra, just in case of emergencies.

The next step is to estimate how much money you need to set aside in order to cover these potential days off. This amount may vary by type of ‘leave’ - you might want to save more to spend for a vacation than during a sick day, for example - but at the very least, the amount you set aside should cover all your expenses for the time you take off.

📖 For more tips on planning leave, check out our guide to taking time off!

Setting money aside

If you have savings that will cover your tax and time-off funds, sweet! Our work here is done, and you can reward yourself with a nice cool/hot drink, depending on the weather.

But if you don’t yet have a fund in place, don’t worry. We can create one. All you need to do is set yourself a savings target based on how much you need, decide on a timeframe, and then put money aside each paycheck until you’ve reached your goal. How little or how much you put aside is entirely up to you.

Hnry makes this easy for sole traders by automatically assigning a percentage of their income to a savings account (or wherever they’d like to send it - investments, charities, friends and family, you name it). Our automatic allocation feature can send money almost wherever.

Get savvy with expenses

When you claim business expenses, you reduce your taxable income and thus your overall tax bill. But you have to be careful to only claim what you’re allowed to claim - otherwise, you risk playing the ATO lottery.

Find out what you can claim

To claim a business expense, the ATO has three golden rules you must meet:

1. You must have spent the money yourself and weren’t reimbursed.
2. The expenses must directly relate to earning your income.
3. You must have a record to prove it (usually a receipt).

Along with their three golden rules, the ATO has industry-specific guides for what you can and can’t claim as a business expense. You can find these guides here.

💡If the expense was for both work and private purposes, you can only claim a deduction for work-related use.

Taking the time now to learn what you can claim as a business expense will set you up for the year ahead. As always, if you’re unsure about what you can claim as a business expense, always check with a tax specialist (or if you’re a Hnry customer, the friendly Hnry team!)

Save your receipts

There’s nothing worse than putting hours of blood, sweat, and tears into your financial admin, only to realise at the end of the financial year that you lost the receipts!

Keeping clear, organised records of purchases and goods/products sold will help make tax time as stress-free as possible. It’s also good practice; the ATO requires you to save a record of your expenses (receipts) for five years after purchase, either physically or digitally. Imagine five years of receipts strewn across your office floor, and you’ll appreciate the value of a good filing system.

Alternatively, you can take a quick photo of your receipts and upload them to the Hnry app. We’ll calculate your expenses and claim your tax deductions for you, and store your receipts for you for 5 years from purchase. No shoebox full of records required - ever again.

Save time, money, and energy with Hnry

We may be biased, but we believe that the best way to manage your taxes as a sole trader is to use Hnry. We’re a fast-growing, award-winning app that’s helping sole traders spend less time on financial admin, and more time doing what they love (unless what they love is financial admin).

So what are you waiting for? Join Hnry today!

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