Sole trader
The simplest business structure, where you and the business are legally the same person.
A sole trader operates under their own tax file number using an ABN. Business income is declared in your personal tax return and taxed at your individual marginal rates.
It is cheap and fast to set up, with no separate tax return, no company fees, and minimal ongoing compliance. That simplicity is why most Australian businesses start this way.
The trade-off is unlimited liability. There is no legal separation between you and the business, so business debts and claims can reach your personal assets including your home.
How the tax works
A sole trader earning $95,000 of business profit with $15,000 of deductions declares $80,000, taxed at ordinary individual rates with the tax-free threshold applying.
The bit people get wrong
No tax is withheld from what you invoice, so the entire liability arrives at lodgment. Setting aside roughly 30% of every payment received is the habit that prevents an unmanageable bill.
Common questions
Do I need an ABN as a sole trader?
Yes, if you are carrying on an enterprise. Without one, businesses paying you must withhold at the top rate under the no-ABN withholding rules.
When should I move to a company?
Usually when profits consistently exceed what you need to live on, when liability risk grows, or when you take on partners or investors. Set-up and running costs need to be justified.
Can I pay myself a wage?
No. As a sole trader you draw from the business rather than paying yourself a salary, and drawings are not a deduction. The whole profit is your income.
Run your own numbers
Related terms
Source: Australian Taxation Office