Sole Trader in Australia: The Complete Guide

Sole trader is the structure most Australian businesses start with, and for good reason: it costs almost nothing to set up, there's barely any paperwork, and every dollar the business makes is simply your income. The trade-off is that every debt and every lawsuit is simply yours too. This guide covers how sole trading works from setup to tax to the day you outgrow it.

What "sole trader" legally means

There's no separate legal entity. You are the business. You trade under your own tax file number, contracts are signed by you personally, business income lands in your personal tax return, and business debts are your personal debts. That single fact drives everything else in this guide — the simplicity, the tax treatment and the risk.

It doesn't mean you work alone. A sole trader can hire staff, engage contractors and run multiple locations. "Sole" refers to ownership, not headcount. If you're weighing this structure against the alternatives, start with our guide to choosing between a sole trader, company or trust.

Setting up: the exact steps

Get an ABN. Free through the Australian Business Register, usually issued instantly. Never pay a third-party site for this — here is how to register an ABN yourself, step by step.
Register a business name — only if you need one. Trading as "Jane Nguyen"? No registration needed. Trading as "Nguyen Plumbing Co"? You must register the name with ASIC: $47 for one year or $108 for three years (as at August 2026 — check the current fee on asic.gov.au). Registering a name gives you zero ownership rights; only a trade mark does that.
Check your licences on ABLIS. The Australian Business Licence and Information Service (ablis.business.gov.au) lists every federal, state and council licence your specific activity and location require — food handling, trade licences, home-based business approvals, the lot.
Open a separate bank account. Not legally required for sole traders, but mixing business and personal transactions makes your bookkeeping (and your accountant's bill) far worse.
Register for GST if turnover will hit $75,000. Once your rolling 12-month turnover reaches the threshold you have 21 days to register — miss it and the ATO can backdate you, leaving you paying GST out of your own pocket on past sales. BAS and GST Explained covers the rest.

How sole traders are taxed

Business profit is added to any salary, interest and other income you earn, and the total is taxed at individual marginal rates. There's no separate business tax return — just the business schedule inside your personal one.

Individual marginal rates, 2026-27

Taxable income	Marginal rate
$0 – $18,200	Nil
$18,201 – $45,000	15%
$45,001 – $135,000	30%
$135,001 – $190,000	37%
$190,001 and over	45%

Add the 2% Medicare levy on top for most people. The 15% rate is new — it dropped from 16% on 1 July 2026 and is legislated to fall to 14% from 1 July 2027.

PAYG instalments

In your first year, nothing is withheld from business income, so your first tax bill can be a shock. After that first return, the ATO moves you onto PAYG instalments automatically — generally once your business and investment income is $4,000 or more and the tax payable on your last assessment is $1,000 or more. You then prepay tax quarterly against the current year. You don't opt in; the ATO writes to tell you it has happened. Put aside 25–30% of profit from day one and the whole system holds no terrors.

Deductions basics

You can deduct expenses incurred in earning your business income: materials, software subscriptions, insurance, marketing, the business share of phone, internet, vehicle and home-office costs, accountant fees and interest on business borrowings. The golden rules: it must relate to earning income, you can only claim the business portion of mixed-use expenses, and you need the record to prove it. Private costs, fines and entertainment are out.

The instant asset write-off

Small businesses (turnover under $10 million) can immediately deduct eligible assets costing less than $20,000 each, rather than depreciating them over years. The limit is per asset, so a $15,000 ute fit-out and an $8,000 computer setup can both be written off in the same year. The $20,000 threshold was made permanent from 1 July 2026 (legislation passed August 2026), ending years of annual extensions.

Super: optional for you, and why you should pay it anyway

Nobody forces a sole trader to pay their own super. That's precisely why so many sole traders reach 60 with a fraction of what employees have — employers must pay staff 12% of their earnings (as at August 2026), while you get whatever you choose to contribute, which for many people is nothing.

Personal contributions are generally tax deductible up to the concessional cap (check the current cap on ato.gov.au), which makes them one of the better deductions available: money that reduces this year's tax while building your own retirement rather than disappearing into an expense. Treat 10–12% of profit as a non-negotiable transfer to super, the same way an employer would.

Record keeping

The ATO requires you to keep records of income, expenses, and asset purchases for five years, and they must be in English (or easily converted) and readable. A shoebox of receipts technically qualifies; a proper system means your BAS takes twenty minutes and your accountant charges you less. See our comparison of the best accounting software for Australian small business — most sole traders need only an entry-level plan.

Unlimited liability: what it actually looks like

Because you and the business are legally the same person, there's no fence between business trouble and personal assets. Concretely:

A cafe customer slips on your wet floor, sues, and the damages exceed your insurance. The shortfall can be recovered from your savings, your car and, ultimately, your house.
Your business owes a supplier $60,000 and cash flow dies. The supplier can pursue you personally — and bankruptcy is personal bankruptcy.
A client claims your defective work caused them $200,000 in losses. That claim is against you, not some company shell.

A company does not make risk vanish (directors have duties, and banks demand personal guarantees anyway), but it does put a real barrier between most business claims and your home.

Insurance that matters

Public liability — covers injury or property damage to third parties. If clients, customers or the public interact with your work, this is the first policy to buy, and many clients and landlords require it before you can start.
Professional indemnity — covers claims that your advice or service caused financial loss. Mandatory in some professions, sensible in most service businesses.
Income protection — a sole trader has no sick leave. If you cannot work, revenue is zero. Income protection replaces part of your earnings while you recover, and premiums are generally tax deductible.
Workers compensation — not for you (sole traders generally can't cover themselves) but compulsory in every state once you hire employees.

What happens when you make a loss

Early-year losses are common. Sometimes you can offset a business loss against your salary or other income, which produces a handy refund — but only if you clear the ATO's non-commercial loss rules. Broadly, your other income must be under $250,000 and the business must pass one of four tests (such as $20,000 or more of business income for the year, or a profit in three of the past five years). Fail them and the loss isn't wasted — it's deferred until the business makes a profit. The rules are genuinely fiddly, so if you're claiming a loss against other income, run it past your accountant first.

Yes, sole traders can hire employees

A common myth says you must incorporate to employ people. You don't. As a sole trader employer you'll need to register for PAYG withholding, pay the 12% super guarantee (from 1 July 2026, super is paid every pay run under payday super, not quarterly), take out workers compensation insurance, and pay at least the relevant award rate. Employing people does raise your risk surface, though — an employment dispute or workplace injury claim lands on you personally — which is why growing headcount is one of the classic triggers to incorporate.

When it's time to become a company

The tax signal

Small companies pay a flat 25% on profits — but only while the profit stays in the company. Pay it out to yourself and top-up tax on dividends largely closes the gap, so the tax case is strongest when you're consistently earning more than you spend and can leave profit in the business to fund growth. As a rough rule, once profits are reliably north of $150,000 and you're reinvesting a good chunk, the numbers deserve a serious look — the full workings, including a year-by-year comparison, are in our company guide linked below.

The other signals

You are taking on contracts where a failure could produce a claim bigger than your insurance.
You want to bring in a business partner or investor — you can't sell shares in yourself.
Larger clients or government tenders require you to contract through a company.

Sole trader vs company at a glance

	Sole trader	Company
Legal identity	You are the business	Separate legal entity
Setup cost	Free ABN (+ optional business name)	ASIC registration fee plus annual review fee
Tax rate	Marginal rates, 0–45% + Medicare	Flat 25% (small companies)
Liability	Unlimited, personal	Generally limited to company assets
Losses	May offset other income (rules apply)	Trapped in the company, carried forward
Paying yourself	Just take the money	Salary, dividends or loans — all with rules
Admin	One personal tax return	Company return, ASIC obligations, director duties
Wind-up	Cancel the ABN	Formal deregistration

When you're ready to run the numbers properly, read our guide to setting up a company in Australia — and get an accountant to model your actual figures before you move, because restructuring has CGT and stamp duty traps.

Key takeaways

A sole trader is not a separate entity: business income, debts and lawsuits are all personally yours.
Setup is an afternoon's work — free ABN, a business name only if you trade under one, licences checked via ABLIS.
Profit is taxed at your marginal rates (15–45% plus Medicare in 2026-27); put aside 25–30% from day one and expect PAYG instalments after your first return.
The $20,000 instant asset write-off is now permanent for businesses under $10 million turnover.
Nobody will pay your super — contribute 10–12% of profit yourself and claim the deduction.
Consider a company once profits consistently beat your living costs, risk grows, or partners arrive; the 25% flat rate only wins while profit stays in the company.

Where to get help

ato.gov.au — tax rates, PAYG instalments, deductions, super and record-keeping rules.
business.gov.au — ABN registration, ABLIS licence search and general start-up guidance.
asic.gov.au — business name registration and current fees.
tpb.gov.au — check that your tax or BAS agent is registered before you pay them.
Your accountant — for loss rules, restructuring decisions and anything where this general information meets your specific numbers.