What Is a Sole Trader? Meaning, Examples, Pros and Cons (Australia)

Short answer: A sole trader is a person who owns and runs a business as an individual. It’s the simplest and cheapest business structure in Australia. You and the business are legally the same person, so you keep all the profit, report it on your own tax return under your personal TFN, and are personally responsible for every business debt. You need a free ABN, you can employ staff, and you must register for GST once your GST turnover reaches $75,000.

The definitions here follow business.gov.au and the ATO. Tax figures are for the 2026–27 income year (1 July 2026 – 30 June 2027) unless stated otherwise. If you’ve already decided, how to become a sole trader walks through the registrations, and sole trader taxes in Australia covers the money side.

What does sole trader mean?

A sole trader is an individual who is legally responsible for all aspects of their business, including its debts, its losses and its day-to-day decisions. “Sole” describes ownership, not headcount. One person owns the business, even if they employ other people.

Because the business isn’t a separate legal entity:

• The profit is your income, and it’s taxed as yours.
• The debts are your debts. business.gov.au is blunt about it: a sole trader has unlimited liability, and assets in your name, including your share of a jointly owned house or car, can be used to pay business debts.
• There’s no separate business tax return. Business income and expenses go on your individual return, in the business and professional items schedule.

There’s no sole trader register: you become one by carrying on a business on your own account.

What are some examples of sole trader businesses?

Most one-owner businesses in Australia that haven’t been set up as a company are sole traders.

Example	Why it’s a sole trader	What to watch
Electrician trading as “Nguyen Electrical”	Sam owns it alone; the ABN is in his own name, with the business name registered on top	Trade licence; GST at $75,000 turnover
Freelance graphic designer	Invoices several clients under her own name and ABN	Quote the ABN on every invoice
Rideshare driver	Drives on their own account through a platform	GST from the first fare, whatever the turnover
Cleaner with two part-time staff	Still a sole trader: one owner, and the staff are employees	PAYG withholding, super, workers’ compensation

A Pty Ltd company isn’t a sole trader: it’s a separate legal entity with its own ACN and TFN. Neither is a partnership, where two or more people run a business together. And an employee doesn’t become a sole trader just by being called a contractor. Contractor vs employee explains the ATO’s tests.

What are the advantages of being a sole trader?

The main advantages are low cost, simplicity and control. business.gov.au describes the structure as simple to set up and operate, with full control of your assets and decisions, fewer reporting requirements and generally low costs.

• It’s cheap to start. An ABN is free, and a business name is only needed if you trade under a name other than your own.
• There’s one tax return. You use your personal TFN and add a business schedule to your individual return.
• You keep the tax-free threshold. Profit is taxed at individual rates, so the first $18,200 of your taxable income is tax-free.
• There’s a small business offset. The small business income tax offset is 16% of the tax on your net small business income, capped at $1,000 a year, where aggregated turnover is under $5 million. The ATO works it out for you.
• Losses can count. The non-commercial loss rules decide whether a business loss can reduce your other income, such as wages, this year.

What are the disadvantages of being a sole trader?

The biggest disadvantage is unlimited personal liability. Tax becomes the second once profits get high.

Disadvantage	What it means in practice
Unlimited liability	A large debt or legal claim can reach your savings, car and share of your home
All profit is taxed in your hands	37% above $135,000 and 45% above $190,000, plus the 2% Medicare levy
You can’t pay yourself a wage	The ATO treats money you pay yourself as a distribution of profit, not a deduction
No employer super	Nobody pays super guarantee for you, though personal contributions are usually deductible
It all rests on you	No paid leave or sick pay, and the business usually stops when you do

Companies pay 25% (base rate entities) or 30% in 2025–26, which is why high-earning sole traders start asking about a Pty Ltd. A company brings its own costs and director duties, so read business.gov.au’s sole trader vs company comparison and get advice before you change structure.

Can a sole trader have employees?

Yes. business.gov.au confirms that you can employ people under a sole trader structure, and the ATO’s checklist for before you hire your first worker sets out what follows:

1. Register for PAYG withholding before your first payment that tax has to be withheld from. You register once, not for each employee.
2. Pay super guarantee of 12% of each eligible employee’s qualifying earnings. It has to reach their fund within 7 business days of each payday.
3. Report every pay run through Single Touch Payroll, using STP-enabled software or a service provider.
4. Take out workers’ compensation insurance under your state or territory’s scheme.

You remain the owner, not an employee. If you’d rather not become an employer, a subcontractor with their own ABN is the usual alternative, provided the arrangement really is a contract.

How is a sole trader taxed in Australia?

You pay individual income tax on your net profit, which is business income minus allowable expenses, added to any other income. As business.gov.au puts it, sole traders pay tax at the individual rate.

Resident tax rates, 2026–27 income year (ATO; excludes the 2% Medicare levy)

Taxable income	Tax on this income
$0 – $18,200	Nil
$18,201 – $45,000	15c for each $1 over $18,200
$45,001 – $135,000	$4,020 plus 30c for each $1 over $45,000
$135,001 – $190,000	$31,020 plus 37c for each $1 over $135,000
$190,001 and over	$51,370 plus 45c for each $1 over $190,000

Worked example. Leah is a mobile hairdresser with no other income. In 2026–27 she takes $68,000 from clients and spends $12,000 on products, tools, insurance and car costs, leaving a profit of $56,000. Her income tax is $4,020 + 30% × $11,000 = $7,320, and the Medicare levy is 2% × $56,000 = $1,120. That’s $8,440 in total, before the small business offset, which can reduce it by up to $1,000. Her turnover is under $75,000, so she doesn’t have to register for GST.

There are two other things to know:

• No tax comes out as you go. Clients don’t withhold from your invoices if you quote your ABN, so your first year’s tax arrives as one bill after you lodge. After that, the ATO usually puts you into PAYG instalments.
• GST is separate. Once your GST turnover reaches $75,000 you must register for GST within 21 days, add 10% to your prices and lodge a BAS.

Sole trader tax rates shows how much to set aside.

What does a sole trader need to register?

Usually just an ABN. Everything else depends on how you trade.

Registration	Do you need it?
Tax file number	You use your existing personal TFN
ABN	Yes, in practice. It’s free
Business name	Only if you trade under a name other than your own (ASIC fee)
GST	At $75,000 GST turnover, or from the first fare for taxi and rideshare
PAYG withholding	Only if you employ staff

The ABN isn’t strictly compulsory. But if you don’t quote one and a payment is more than $75 excluding GST, a business paying you generally has to withhold 47%. How to apply for an ABN covers the free application. A separate business bank account isn’t legally required either, but it makes your records far easier to follow.

What records does a sole trader keep, and where does Keel fit?

As a sole trader, the records are yours to keep: every invoice you send, every receipt for what you buy and the kilometres you drive for work. You keep them for 5 years.

Keel: Invoice Maker & Receipts, by Ilura Technology OÜ, is an iPhone app for people who work for themselves. An accepted estimate becomes the invoice in one tap. Every quote, receipt, expense and invoice (as a PDF) is filed under its job, alongside your customers and business mileage. A “who owes you” list drafts reminders that you review and send yourself; nothing is sent automatically. Records stay on your iPhone, with no account, no bank connection and no cloud sync, and the App Store privacy label reads “Data Not Collected”.

Keel doesn’t register you, lodge a BAS or tax return, connect to the ATO or work out your tax. It’s free with no invoice limit, and free invoices carry a small “Made with Keel” footer. Keel Lifetime is a one-time purchase ($249.99 USD; the App Store shows your local price) that adds custom branding, a signature, premium templates and accountant-ready exports. Keel on the App Store. For more Australian guides, see the Australia hub.

Frequently asked questions

Can a sole trader have employees? Yes. You register for PAYG withholding before the first payment you withhold from, pay 12% super guarantee on qualifying earnings, report each pay run through Single Touch Payroll and hold workers’ compensation insurance. You remain the owner, not an employee.

What is the difference between a sole trader and a company? A sole trader and their business are the same legal person: one tax return at individual rates, and unlimited personal liability. A company is a separate legal entity with its own ACN and TFN. It pays company tax and generally limits the owners’ liability, but costs more to run and brings director duties.

Do sole traders pay more tax than companies? Not necessarily. Sole traders pay individual rates from nil to 45%, plus the 2% Medicare levy, so at low and middle profits the bill is often modest. Companies pay a flat 25% or 30%, which matters at higher profits, but money taken out of a company is taxed again in the owner’s hands. Get advice before switching.

Is a freelancer a sole trader? Usually, yes. A freelancer who works for several clients under their own name and ABN, without a company, is a sole trader and reports the income on their individual return with a business schedule. The exception is an arrangement that’s really employment, whatever it’s called.

Can a sole trader have a business name? Yes. You can trade under your own name, or register a business name such as “Nguyen Electrical” with ASIC. The name sits on top of your ABN; it doesn’t create a company or change your liability.

Does a sole trader need a separate business bank account? It isn’t legally required, but it’s strongly recommended. It keeps business money apart from personal spending, which makes your records and BAS easier. The ATO’s BAS and GST tips also suggest a separate account for the money you set aside for tax.

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This article is general information, not tax advice. Consult a qualified Australian tax professional.