How Much Tax Should Self-Employed Tradies Save?

How Much Tax Should Self-Employed Tradies Save? The Practical Australian Guide

Most self-employed tradies get blindsided twice. First when they realise they owe the ATO money they've already spent. Then again when they discover how much they could have claimed but didn't. Tax planning for tradies isn't complicated — but it does require knowing the rules and building a few simple habits before EOFY rolls around.

This guide covers what to save, what to claim, and how to set up systems that keep you on top of it without drowning in paperwork.

Related: The 7-Day Payment Loop: Faster DSO System

Why Most Tradies Pay More Tax Than They Should

The Australian tax system is genuinely set up to benefit self-employed tradies — tools, vehicles, software, training, phone bills. The deductions are real and they're significant. The problem is that claiming them requires records, and most tradies are too busy on the tools to think about receipts until June.

The gap between a tradie who claims everything they're entitled to and one who doesn't can easily be $5,000–$15,000 in taxable income per year. At the 32.5% marginal rate (which kicks in at $45,001), that's up to $4,875 back in your pocket — legally, without changing how much work you do.

Related: Where Trade Profit Hides: Bake Variations Into Quotes

Before you can claim anything, though, you need to deal with the first problem: cashflow. The ATO expects you to pay income tax on your business profits, and as a sole trader or company, nobody is withholding it for you. That means the money needs to sit somewhere safe until it's due.

How Much Should You Actually Set Aside?

The honest answer depends on your net income, your business structure, and what deductions you'll legitimately claim. But here's a practical starting point for sole traders in Australia:

• Under $45,000 net profit: Set aside 20–22% of every payment you receive.
• $45,001–$120,000 net profit: Set aside 27–30%. You're in the 32.5% bracket, but deductions will bring your taxable income down.
• $120,001–$180,000 net profit: Set aside 35–38%. The 37% rate applies here, and every deduction counts more.

These figures include Medicare Levy (2%). They also assume you're claiming deductions actively — if you're not tracking anything, add another 3–5% to your buffer.

The smartest approach is a separate tax savings account. Every time a payment lands, transfer your percentage immediately. Don't touch it. This is not a radical idea — it's what every tradie who's never had a nasty ATO surprise does.

What Can Tradies Actually Deduct?

This is where the real money is. Let's go through the major categories every tradie should be actively claiming.

Tools and Equipment

Almost every tool you use for work is deductible. The ATO's instant asset write-off allows eligible businesses to deduct the full cost of qualifying assets in the year of purchase, rather than spreading it across several years of depreciation. Thresholds change annually — confirm the current limit with your accountant or check the ATO's website before EOFY.

What qualifies: hand tools, power tools, laptops and tablets (business-use portion), safety gear, specialised equipment like pipe cameras or thermal imagers, and trailers. If a tool is partly personal use, you can only claim the business percentage — keep a record.

Vehicle Expenses

Your ute or van is probably your second-biggest business cost after wages. There are two ATO-approved methods:

Logbook method: Keep a logbook for at least 12 consecutive weeks to establish your business-use percentage. Apply that percentage to all vehicle costs for the year — fuel, registration, insurance, servicing, loan interest, depreciation. For tradies doing significant kilometres, this almost always produces a larger deduction.

Cents per kilometre method: Claim the ATO's set rate per kilometre (88 cents per km in 2024–25) up to 5,000km per year. No logbook required, but you do need reasonable records of the trips. Simple, but capped — if you're driving more than 5,000 business kilometres, you're leaving money on the table.

Tools like ServiceM8, Tradify, and Fergus automatically log job locations and travel, which makes reconstructing your logbook far less painful. If you're already using job management software, your travel records are largely done.

Phone, Internet, and Software

Every dollar spent on trade business software is deductible. Subscriptions to ServiceM8 (from $29/month), Tradify (from $35/month), Fergus (from $49/month), Xero (from $32/month), or MYOB (from $27/month) are legitimate business expenses — $400 to $700+ per year in deductions that many tradies simply forget to claim.

Phone and internet bills are deductible at your business-use percentage. Track your usage over a four-week representative period, establish the ratio, and apply it to the full year. For most tradies using their phone for quoting, job management, and customer communication, 60–80% business use is reasonable.

Training, Licences, and Industry Memberships

Trade-related training is deductible. That includes licence renewals (electrical, gas, plumbing), first aid and white card renewals, short courses on confined space or working at heights, business skills training like estimating workshops, and memberships with Master Electricians, Master Plumbers, HIA, or the MBA.

The rule: it must relate to your current work, not a career change. A sparkies' solar panel installation course is deductible. The same sparky studying to become a plumber is not.

Home Office

If you do admin, quoting, or scheduling from home — and most sole traders do — you can claim the ATO's fixed-rate method: 67 cents per hour for every hour worked from home. Two hours of evening admin, five nights a week, adds up to roughly $700–$1,000 per year. Keep a simple log of the hours.

Setting Up Your Tax System (Do This Once, Benefit Every Year)

Getting this right upfront eliminates most of the EOFY stress. Here's the practical setup:

This setup takes a few hours to get running. Once it's in place, your record-keeping becomes mostly automatic, and you go into every EOFY with clean books and a solid evidence trail for your deductions.

The 90-Day Rollout: Getting Your Tax House in Order

If your current system is a shoebox of receipts and a vague sense of dread, here's a realistic timeline for fixing it:

What Happens at EOFY (and How Not to Get Caught Short)

The ATO requires sole traders to lodge their tax return by 31 October, or later if you use a registered tax agent (many agents have extensions to May). PAYG Instalment obligations may also apply once your tax bill exceeds a certain threshold — the ATO will notify you if this kicks in, and it means paying tax quarterly rather than as a lump sum. This is actually helpful for cashflow if you're managing your savings well.

The most common EOFY mistake tradies make is waiting until after June 30 to think about any of this. Prepaying expenses before EOFY — like renewing software subscriptions, paying for training, or buying tools you genuinely need — can bring forward deductions into the current financial year. This is legal and common practice. It's not worth buying things you don't need just for the deduction, but if you were going to buy them anyway, buy them before June 30.

Frequently Asked Questions