Sole Trader

A sole trader is the simplest business structure in Australia. It means you own and operate your business as an individual, taking full control of its decisions, profits, and obligations. In this structure, there is no legal distinction between you and your business — you are personally responsible for all debts, taxes, and liabilities.

Sole trading is a common choice for freelancers, tradespeople, consultants, and small business owners who want an easy and cost-effective way to start operating.

What It Means in Australia

As a sole trader, you must:

• Register for an Australian Business Number (ABN) through the Australian Business Register (ABR).

• Register a business name with ASIC if you’re not trading under your own name.

• Report all business income in your personal tax return using your Tax File Number (TFN).

• Pay tax at individual income tax rates.

• Register for GST if your annual turnover exceeds $75,000.

• Keep accurate financial and tax records in line with ATO requirements.

Advantages

✔ Full Control
You make all business decisions independently and can adapt quickly to changes.

✔ Simple and Low Cost
Setup is fast and inexpensive, with minimal reporting requirements.

✔ Straightforward Taxation
You lodge one individual tax return — business profits are taxed as personal income.

✔ Privacy
Your financial details remain private, unlike companies whose information appears on ASIC registers.

✔ Flexibility
Ideal for testing a business idea, working as a contractor, or starting small.

Disadvantages

⚠ Unlimited Liability
You are personally liable for all business debts and obligations. If the business cannot meet its financial commitments, your personal assets (such as your home or savings) could be at risk.

⚠ Tax Limitations
Profits are taxed at your individual marginal tax rate. If your income grows, your tax may be higher than a company’s flat rate (currently 25% for small businesses).

⚠ Limited Growth Potential
It can be difficult to raise capital or bring in investors under this structure.

⚠ No Separation Between You and the Business
If you stop working, fall ill, or retire, the business generally stops with you.

When It’s Suitable

A sole trader structure is most appropriate if you:

• Are starting a small or low-risk business.

• Want to operate independently with full control.

• Have minimal need for outside investment.

• Prefer a simple tax and compliance process.

• Are a freelancer, consultant, or self-employed professional.

Many Australian businesses begin as sole traders, then restructure into a company or trust as they grow.

What to Watch Out For

🧾 Insurance: Protect yourself with public liability, professional indemnity, and income protection insurance.

💳 Banking: Keep business and personal finances separate — open a dedicated business bank account.

🧠 Record Keeping: Track income, expenses, and receipts carefully for ATO reporting.

📈 Growth: Reassess your structure if profits increase or risk exposure grows — transitioning to a company or trust can offer better protection and tax flexibility.

Summary

Becoming a sole trader is the fastest and simplest way to start a business in Australia.
It offers freedom, flexibility, and low costs, but also carries personal financial risk. With good record-keeping, appropriate insurance, and regular reviews, it can be an excellent foundation for your business journey.

Information current as of October 2025. Reviewed by the Trustify Business Advisory Team. This content is general in nature and does not constitute financial or legal advice. For personalised guidance, speak with a registered tax or business advisor.