What Is a Sole Trader? Meaning, Pros and Cons in Australia
Quick answer
A sole trader is a person who runs a business on their own, in their own name. It’s the simplest and cheapest business structure in Australia: you use your personal tax file number, report business income in your individual tax return and keep all the profit. The trade-off is that you are personally responsible for all the business’s debts.
If you’ve started freelancing, a side hustle or a trade business, you’re probably already a sole trader, even if you’ve never called yourself one. Here’s what it means in plain English, and when it’s the right choice.
Sole trader meaning, in plain English
Being a sole trader means you are the business. There’s no separate legal entity, like there is with a company. The business’s income is your income, its contracts are your contracts and its debts are your debts. You can still hire staff, use a business name and earn a large income as a sole trader.
How a sole trader is set up
- ABN: you apply for an Australian Business Number, which is free. See how to get an ABN.
- Tax: you use your own TFN and lodge one individual tax return that includes your business income.
- Business name: only needed if you trade under a name other than your own. See how to register a business name.
- GST: only required once your turnover reaches $75,000, or if you drive for a rideshare service.
Pros and cons of being a sole trader
| Pros | Cons |
|---|---|
| Cheap and quick to set up: an ABN is free | Unlimited personal liability for business debts |
| Simple tax: one individual return | Taxed at personal rates, up to 45% plus Medicare levy |
| You keep all the profit and make all the decisions | Harder to bring in partners or investors |
| Few ongoing reporting obligations | No tax is withheld, so you must save for your tax bill |
| Easy to close if you stop trading | Income splitting with family is limited |
How sole traders pay tax
Your business profit is added to any other income, such as wages, and taxed at the normal individual rates. In 2026–27 the first $18,200 is tax-free, then 15% applies up to $45,000 and 30% up to $135,000. Because nobody withholds tax for you, it’s important to set money aside as you go. Read how much tax a sole trader should set aside.
Sole traders with a small business turnover under $5 million may also get the small business income tax offset, worth up to $1,000 a year, and can claim a wide range of business expenses. See sole trader tax deductions.
Sole trader vs company
| Sole trader | Company (Pty Ltd) | |
|---|---|---|
| Legal entity | You | Separate from you |
| Liability | Personal and unlimited | Generally limited to the company |
| Tax rate | Individual rates (0–45%) | 25% or 30% flat |
| Set-up cost | Free ABN | $636 ASIC fee plus advice |
| Ongoing admin | Low | Higher: ASIC review, company return |
Tip: Many people start as a sole trader and move to a company once profits grow, usually somewhere above about $100,000 a year. Get advice before switching, as moving assets and contracts has tax consequences.
How to become a sole trader
- Check you’re running a genuine business, not working as an employee.
- Apply for a free ABN at abr.gov.au and choose “sole trader”.
- Register a business name if you won’t trade under your own name.
- Open a separate bank account for business money.
- Work out whether you need to register for GST.
- Set up simple record keeping and start saving for tax.
Ready to grow beyond sole trader?
If your profit is growing, a company might save you tax and protect your personal assets. We can set one up for you.
Frequently asked questions
Is a sole trader the same as self-employed?
Mostly, yes. Being a sole trader is the most common way to be self-employed in Australia. Contractors and freelancers are usually sole traders.
Can a sole trader employ staff?
Yes. A sole trader can hire employees, but must then register for PAYG withholding, pay super and report through Single Touch Payroll.
Does a sole trader need an ABN?
If you’re carrying on a business, yes, in practice. Without an ABN, businesses you invoice may have to withhold 47% of your payment.
Can I be a sole trader and have a job?
Yes. Many people run a sole trader business alongside a job. Both incomes go on the same tax return.
This article is general information only, not tax, legal or financial advice. Check ato.gov.au or speak with a registered tax agent about your situation.
