What is a Sole Trader? The Complete AU Guide for 2026

If you've ever researched going into business for yourself and becoming self-employed, you may have come across the term "sole trader." You might ask yourself what does this mean and how can it affect me?

In short, a sole trader is a self-employed person who is the sole owner of their business. As a term, it can be used interchangeably with sole proprietorship and generally refers to the structure of a business. If you choose to operate as a sole trader, you and your business become one legal entity in the eyes of the law, and you're entitled to all your profits after tax.

Thanks to the relative ease with which one can become a sole trader, it has become a very popular option for self-employed people. Sole trading is the simplest and most common business structure for Australians starting out on their own, and if you're planning to open a small business it might be the right option for you.

What is a sole trader business?

A sole trader, also known as a sole proprietor or sole proprietorship, is a straightforward business structure where one individual operates and owns the entire business. It's one of the simplest ways to start a business because it doesn't require registering a company with the Australian Securities and Investments Commission (ASIC). In this setup, the sole trader has complete control over how the business operates and retains full autonomy in developing the business's identity and brand.

Usually, the sole trader is the sole worker in the business they've established. However, they can hire employees, in which case they need to register as an employer with the ATO and set up PAYG withholding for managing payroll and tax.

But before we go any further, let's look at the advantages and disadvantages of being a sole trader.

Advantages of a sole trader

As a small business owner, these are the advantages of being a sole trader:

For many, the freedom to work for yourself is the biggest benefit. Sole traders have complete control of their company. This means they're free to run it exactly how they want and make decisions as they see fit.

Depending on the industry, sole traders have little to no start-up costs. This, combined with the fact that there are very few annual accounting costs, means you'll be able to keep a much firmer grip on your overheads. This financial freedom extends to your profits, where you alone get to keep everything after tax.

Sole trader advantages extend as far as financial privacy, too. Unlike a company, whose details are recorded on public registers, sole traders are able to keep their finances strictly private. No member of the public is able to see a self-employed person's finances unless they choose to share them themselves.

Drawbacks of sole trading

While there are undeniable advantages to becoming a sole trader, there are several downsides. As long as your business keeps running smoothly, you should be able to avoid any of these adverse effects.

Unlimited liability refers to the fact that as a sole trader, you are personally liable for any and all of your business's debts and losses. For sole traders, there's no distinction between personal and business assets. If worse comes to worst and you suffer a big financial hit, creditors could come for assets such as your house, car, or anything else in your name.

Due to unlimited liability, some sole traders may have difficulty accessing finance. The private nature of your finances and the inherent risk of being self-employed means that lenders may be reluctant to offer as much as they would to a company. In turn, this can contribute to credibility issues, where your business is perceived as less established than an incorporated company. Some traders try to get over this problem by emulating the practices of successful businesses.

Being legally one and the same as your business can sometimes lead to complications when you try to sell it or transfer ownership to someone else when you retire. The process of separating personal and business assets means that some people choose to transfer their business into a company structure. As a company is owned by its shareholders, the personal and business assets of the owner are separate, making the transfer of ownership much easier.

Sole trader vs Limited company: what's the right choice for you?

Examples of sole traders

Lots of small businesses in Australia are set up as sole proprietorships. Here are some common examples:

• Tradespeople: These are folks like builders, gardeners, landscapers, carpenters, and handymen. 
• Freelancers: People who work independently in digital and creative fields (freelancers) often operate as sole traders. This includes jobs like graphic designers, web developers, writers, marketers, and social media experts.
• Gig economy workers: These are the ones who work flexible gigs, sometimes alongside another job. Think taxi drivers, couriers, delivery folks, and tutors.

How to set up as a sole trader

Now that you've got a good understanding of what a sole trader is, let's talk about setting up as a sole trader. Here are some simple steps:

Choose a business name

As the sole proprietor of your business, it’s up to you to come up with a suitable name for your company. Choosing a business name is an important step in legitimising yourself as a sole trader, so you must make sure to do it properly.

Your business name can be almost anything you want. Some sole traders choose to keep it simple and use their own name, some go for something professional-sounding, and some even choose to make their name a catchy phrase or a witty joke. Whatever name you choose, make sure it’s a good representation of who you are as a self-employed person and what your company does.

If you trade under a name other than your own personal name, you must register that business name on the ASIC Business Names Register. A few guidelines to follow:

• Names that are rude or offensive will not be accepted.
• Business names generally can't include words like "Pty Ltd" or "Limited" unless your business is actually incorporated as a company.
• Names can't infringe existing registered trademarks — check the Australian trade mark register (IP Australia) before settling on one, as this could open you up to legal action.

If you're unsure whether your name would breach any of these guidelines, it's safer to err on the side of caution and choose a different name.

Get an ABN

To operate as a sole trader in Australia, you need an Australian Business Number (ABN), which you can apply for free through the Australian Business Register (ABR) at abr.gov.au. Approval is often instant, and you can typically start invoicing the same day.

Your ABN identifies your business to clients, the ATO, and other government agencies. Without one, clients paying you may be required to withhold 47% of your invoice under "no ABN" PAYG withholding rules — a cash flow problem worth avoiding entirely.

Becoming a GST-registered sole trader

Depending on your business and how much you earn, you might need to register for GST (Goods and Services Tax). You must register if:

• Your GST turnover reaches or is likely to reach $75,000 in a 12-month period.
• You provide taxi, limousine, or rideshare services, in which case you must register regardless of turnover.

Note: Even if your turnover is under $75,000, you can register for GST voluntarily. This might be worthwhile if you want to claim GST credits on your business purchases, particularly if your clients are GST-registered businesses.

If you're under the threshold and don't register, you shouldn't charge GST on your sales, and you can't claim GST credits on your expenses.

Once registered, you charge 10% GST on your taxable sales, claim GST credits on eligible business purchases, and lodge Business Activity Statements (BAS) — usually quarterly — reporting the difference to the ATO.

Think about superannuation

Unlike employees, sole traders aren't legally required to make superannuation contributions for themselves. However, many choose to contribute voluntarily, both to build retirement savings and because personal contributions can be claimed as a tax deduction (subject to the annual concessional contributions cap, which is around $30,000–$32,500 depending on the financial year — check the current ATO figure). You'll need to lodge a notice of intent to claim with your super fund before you lodge your tax return.

Set up a business bank account

It's smart to keep your personal and business finances separate. Opening a business bank account makes it easier to track your income and expenses. Plus, it shows you're serious about your business.

Most banks offer business accounts with features like free transactions, accounting software integration, and sometimes even perks like discounts on business services. To get started, bring your ID, proof of address, and business registration documents.

Working as a sole trader and tax responsibilities

Sole traders don't pay a separate company tax rate. Instead, business profit is simply added to any other personal income and taxed at ordinary individual rates.

Pay income tax

As a sole trader, you pay income tax on your net business profit — your income after deducting allowable business expenses — using the same individual tax brackets as employees. For 2025–26, these are broadly:

• 0% on the first $18,200 (the tax-free threshold)
• 16% on income from $18,201 to $45,000
• 30% on income from $45,001 to $135,000
• 37% on income from $135,001 to $190,000
• 45% on income above $190,000

There's no separate "sole trader tax rate", your business profit is simply reported on your individual tax return and taxed alongside any other income you earn.

Medicare levy

On top of income tax, most sole traders pay the Medicare levy, generally 2% of taxable income, funding Australia's public healthcare system.

PAYG instalments

Because no one withholds tax from your invoices as you're paid, you're responsible for setting aside money throughout the year. After your first tax return, the ATO may automatically enrol you in PAYG instalments, quarterly prepayments towards your expected tax bill, so you're not hit with one large amount at year-end. A common rule of thumb is to set aside roughly 25–30% of your income for tax and the Medicare levy, though this varies with your income level and deductions.

Lodge your tax return

Sole traders report business income as part of their individual income tax return, generally due by 31 October each year if lodging yourself (later dates usually apply if you lodge through a registered tax agent). It's how you report your income, claim deductions, and settle your income tax, Medicare levy, and any PAYG instalment adjustments.

Business insurance

To keep yourself covered, think about getting business insurance. It can protect you if something goes wrong, like if a client claims against you or there's an accident at work. It's a good idea to check out different types of insurance, depending on what your business does.

Sole trader expenses

Claiming allowable deductions reduces your taxable profit, so it's worth knowing what you can claim. The ATO generally allows deductions for expenses incurred in earning your business income, including:

• Office costs. Stationery, phone, and internet bills used for business can be claimed, even if you work from home and only use them partly for business.
• Travel. Business-related travel, including work vehicle use calculated using the ATO's cents-per-kilometre method or logbook method, is deductible (ordinary commuting generally isn't).
• Marketing and advertising. Website costs, social media ads, and printed materials all count.
• Professional subscriptions and training. Trade body memberships and courses that maintain or improve your existing skills are generally deductible.
• Equipment and tools. Sole traders with an aggregated turnover under $10 million can generally claim an immediate deduction for eligible assets under the instant asset write-off, subject to a threshold that's set annually — check the current ATO limit before relying on it.
• Stock and materials. Goods bought to sell or use in your work are a straightforward deductible cost.
• Accountancy fees. Fees for bookkeeping, tax returns, or general business advice are deductible too.

For working from home, the ATO offers a fixed-rate method (a set cents-per-hour rate covering electricity, internet, and similar running costs) or an actual-cost method — check the current ATO rate and record-keeping requirements before choosing between them. You'll generally need written evidence for expenses, though small expenses under $10 can sometimes be substantiated with bank statements alone.

Make being a sole trader easier 

Becoming a sole trader is a decision that shouldn’t be taken lightly. If you do decide to go down the self-employed route, it’s important to make sure you have the tools you need to run your business the way you want to. 

Running a business on your own means every tool needs to earn its place. Epos Now's cloud-based POS system gives sole traders a complete, real-time view of their sales, stock, and finances in one place, without the overhead of a full accounts team. Using an innovative cloud-based system, you’ll be able to control all the vital aspects of your business from one easy-to-use point of sale system.

Our systems can integrate with thousands of popular apps to make the process even simpler, such as key accounting integrations like Xero and Quickbooks.