When you operate your business as a sole trader, any tax you have to pay on your business profits is included in your individual income tax return.  The amount of tax you have to pay is always calculated on your total taxable income.

To calculate your taxable income, you will declare all your different income sources.  This could include things like:

• wages or salary from your job,
• investment income,
• dividends on shares,
• rental property income or
• business income

Then you can add in any eligible (ie reasonable and verifiable) deductions, which could include things like:

• travel,
• interest on loans,
• business expenses,
• motor vehicle costs,
• education etc.

All those eligible deductions are then used to reduce your income.

Taxable income = Total income less eligible deductions

Depending on what your taxable income amount is, the ATO will use the individual income tax rates to calculate how much tax you need to pay.

*Note, the types of income and deductions mentioned above are examples only.  There are a large range of different types of income and deductions that will apply to different individuals depending on their circumstances.