A sole trader is an individual who runs a business as themselves. There is no separate legal entity: you and the business are the same person in the eyes of the law and the Australian Taxation Office. You trade under your own tax file number, you keep all the profit, and you carry all the liability personally.
It is the simplest and cheapest way to be in business in Australia, and it is how the large majority of one-person businesses operate. The two things worth understanding before you choose it are how your profit is taxed and what "personally liable" actually means, because both are different from what people assume.
What does sole trader actually mean?
It means the business has no legal existence apart from you. A company is a separate legal person that can own things, owe money and be sued in its own name. A sole trader is not. When your business signs a contract, you signed it. When your business owes money, you owe it.
Practically, that shows up as:
- One tax file number. Your own. The business does not get its own.
- One tax return. Business profit goes on your individual return.
- One bank balance that is legally yours. A separate business account is a very good idea, but it is a bookkeeping convenience, not a legal wall.
- An ABN in your own name. Free from the ABR, and you keep the same one even if you change what you do.
You can still trade under a name that is not your own, by registering a business name. That does not create a separate entity either. It is a label on the same person. See how to register a business name.
How is a sole trader taxed?
Your business profit is added to any other income you have and taxed at ordinary individual rates. There is no separate business tax rate, and the company tax rate does not apply to you. If you also have a job, the salary and the business profit stack together and the total decides your rate.
Three consequences that catch people out in their first year:
- Nobody withholds tax for you. An employer sends PAYG withholding to the ATO every payday. Running your own business, nobody does, so the entire year's tax arrives as one bill after you lodge. Setting money aside as you earn it is the whole discipline.
- You do not pay yourself a wage. Money you move from the business account to your own is a drawing, not a salary, and it is not a deduction. You are taxed on the profit whether you took it out or left it in.
- Nobody pays your super. There is no employer to make super guarantee contributions. Anything you put into super is your own decision, and it may be deductible if you do it properly.
How much tax a sole trader pays works the calculation through, and superannuation for sole traders covers the deduction and the notice you have to lodge to get it.
What does unlimited liability mean in practice?
This is the real trade-off, and it is usually described too vaguely to be useful. Unlimited liability means business debts are your debts. If the business cannot pay a supplier, a lender or a damages claim, the creditor can pursue your personal assets: your savings, your car, in principle your house.
Whether that risk is theoretical or serious depends entirely on what you do. A copywriter with no stock, no staff and no premises is carrying very little. A trade working on other people's property, anyone whose advice can cost a client money, and anyone taking on debt to grow, is carrying a lot more.
The practical answers are insurance and, past a certain point, a different structure. Public liability and professional indemnity cover exist precisely for this, and are usually the cheaper fix. Changing structure is the other lever, and it is covered on the business structures comparison, which weighs sole trader against partnership, company and trust properly.
What does a sole trader still have to do?
Simple is not the same as unregulated. The obligations that apply regardless of size:
- Lodge a tax return every year. The ATO requires one if you carried on a business, even if it earned nothing. There is no threshold for business income, and the tax-free threshold does not exempt you. It is due 31 October if you lodge it yourself.
- Register for GST once your turnover reaches $75,000, and lodge a BAS after that. The $75,000 test is about turnover, not profit, which is the usual misunderstanding.
- Keep your records for five years. Invoices, receipts and bank records, in a form someone else could follow.
- Issue correct invoices. With your ABN, and as tax invoices once you are registered for GST.
Can a sole trader have employees?
Yes, which surprises people who read "sole" as meaning "alone". Sole refers to there being one owner, not one worker. You can hire staff, but PAYG withholding, Single Touch Payroll, super guarantee and workers compensation all follow, and the liability for all of it is personal. The employing page covers what changes.
The honest case for and against
| In favour | Against |
|---|---|
| Free to start. An ABN costs nothing. | Unlimited personal liability for business debts. |
| One tax return, no separate company filing. | Profit taxed at individual rates, which climb above the company rate. |
| No annual ASIC review fee and no director duties. | Harder to bring in a co-owner or investor later. |
| You keep all the profit and decide everything. | No employer paying your super, and no paid leave. |
| Closing down is simple: cancel the ABN. | Some larger clients prefer to contract with a company. |
When does it stop being the right fit?
There is no turnover figure at which you must incorporate, and plenty of profitable one-person businesses never do. The signals worth acting on are about risk and ownership rather than size: the liability is becoming real, profit is consistently high enough that the tax difference outweighs the cost of running a company, someone else is joining as an owner, or a client requires it.
You can change structure later, and doing it thoughtfully with an accountant is a normal step rather than an admission of a mistake. Start simple and move when there is a reason, rather than paying for a company in year one on the chance you might need it.
Related reading
- Sole trader, partnership, company or trust?
- How to get an ABN
- How to start a business in Australia
- What a sole trader can claim
Frequently asked questions
An individual who runs a business as themselves. There is no separate legal entity, so you trade under your own tax file number, report the business profit on your own tax return, keep all the profit, and are personally responsible for all the debts. It is the simplest and cheapest business structure in Australia.
Self-employed describes the situation of working for yourself rather than an employer. Sole trader is a specific legal structure for doing that. Every sole trader is self-employed, but a self-employed person could instead operate through a company, a partnership or a trust.
If you are carrying on a business, yes, and it is free from the Australian Business Register. Without one, businesses paying you may have to withhold 47 per cent of the payment, and you cannot register for GST or issue a valid tax invoice.
Yes. You can register a business name with ASIC and trade under it instead of your personal name. It does not create a separate legal entity or change your liability. It is a trading label attached to you.
Yes, without limit. Business debts are your debts, so a creditor can pursue your personal assets, including savings and property. This is the main disadvantage of the structure. Public liability and professional indemnity insurance are the usual mitigation, and moving to a company is the structural one.
Business profit is added to your other income and taxed at ordinary individual rates. There is no separate sole trader rate and the company rate does not apply. Because nobody withholds tax during the year, the bill arrives after you lodge, so setting money aside as you earn is essential.
Yes. Sole refers to there being one owner, not one worker. Once you employ anyone, PAYG withholding, Single Touch Payroll reporting, super guarantee contributions and workers compensation insurance all apply, and you carry that liability personally.
Sources
The lodgment obligation for business income, the treatment of sole trader profit on the individual return and the record-keeping period come from ato.gov.au, read on 21 September 2026. Thresholds and rates change, so confirm current figures there or with a registered tax agent rather than from this page. Balaana is bookkeeping software, not a tax agent. This article is general information, not personal tax or legal advice.