What is a sole trader?
A sole trader is a self-employed person who owns and runs their business as an individual. The individual is legally responsible for all aspects of the business including debts and losses. You can still hire people under this business structure.
Many tradespeople operate their businesses as a sole trader.
Which business structure is best for you?
If you're not sure which structure is best for your business, our step-by-step guide can help.
How to register as a sole trader
Once you've decided that being a sole trader is right for you, follow these steps to register:
- Decide if you want to operate using a name other than your personal name.
- Check your proposed business name doesn't infringe on existing trade marks.
- Register your business name.
- Apply for the relevant licences and registrations for your business type, such as a TFN and ABN.
- Find the right insurance for your business.
Licences and registrations for a sole trader
Your business name
If you want to operate under a name other than your personal name, you must register it as your business name.
If you want ownership or legal protection of your business name, you'll need to trademark it.
Tax registrations
Tax file number (TFN)
A key feature of a sole trader business structure is that you can use your individual tax file number (TFN) when lodging your income tax return.
Australian business number (ABN)
An Australian business number (ABN) allows clients to pay you in full. If you don't quote an ABN, your clients must withhold 47% of their payments to you for tax purposes.
An ABN is also compulsory if your business collects goods and services tax (GST).
When you apply for an ABN with the Australian Business Register (ABR), you'll be asked if you want to register under the sole trader business structure.
You're not entitled to an ABN if you're a sole trader working as an employee or in connection with earning payment as a company director, office holder or under a labour hire arrangement.
Goods and services tax (GST)
You need to register for GST if your expected or current annual turnover is $75,000 or more.
Other licences and permits
Check the Australian Business Licence and Information Service (ABLIS) to find other local, state and federal licences, registrations and permits that you need for your business.
Responsibilities of a sole trader
Superannuation
As a sole trader, you're responsible for your own superannuation arrangements. You might be able to claim a deduction for any personal super contributions you make on your tax return.
Before you can claim a deduction, you must notify the fund that you intend to claim the amount and wait to receive confirmation.
Employing staff
If you employ people, you'll be responsible for paying:
- employee payroll tax and PAYG, including reporting and paying fringe benefits tax
- superannuation for eligible employees
Insurance
A sole trader owns all the business assets and is responsible for the business's liabilities. Liability is unlimited and includes all personal assets, including any assets the owner shares with another person (such as a jointly owned home or money in a joint bank account).
The right insurance can protect your business from events that disrupt your ability to trade.
