Sole trader

A sole trader business structure is a person trading as the individual legally responsible for all aspects of the business. This includes any debts and losses, which can't be shared with others. This is the simplest, and relatively inexpensive business structure that you can choose when starting a business in Australia. As a sole trader, you'll generally make all the decisions about starting and running your business, although you can employ people to help you.

Key aspects of a sole trader structure

  • Is simple to set up and operate.
  • Gives you full control of your assets and business decisions.
  • Requires fewer reporting requirements and is generally a low-cost structure.
  • Allows you to use your individual Tax File Number (TFN) to lodge tax returns.
  • Has unlimited liability - all your personal assets are at risk if things go wrong. Your assets can be seized to recover a debt.
  • Any losses incurred by your business activities may be offset against other income earned (such as your investment income or wages), subject to certain conditions.
  • Doesn't require a separate business bank account, unlike a company structure. Although it is recommended you have a separate bank account so you can easily keep track of your business income and expenditure. You must keep financial records for at least 5 years.
  • As the business owner, you're not considered an 'employee' of the business. You should pay yourself, which is usually a distribution of your profit, but this is not considered 'wages' for tax purposes.
  • If you're a business owner without employees, there's no obligation to pay payroll tax, superannuation contributions or workers' compensation insurance on income you draw from the business. You can choose to make voluntary superannuation contributions to yourself though, to help you build up your superannuation.
  • You can employ people to help you run your business. There are compulsory obligations that you must comply with, such as workers' compensation insurance and superannuation contributions.
  • It's relatively easy to change your business structure if the business grows, or if you wish to wind things up and close your business.
  • You can't split business profits or losses made with family members and you're personally liable to pay tax on all the income derived.
Before deciding on your business structure, it is important to seek professional advice from a business adviser, solicitor or accountant to ensure the structure you choose meets your personal circumstances and business objectives. Find a low-cost business adviser near you in our Advisory Services search tool.

More information...

  • Understand more about each business structure, including companies, partnerships and trusts.
  • Read more about the tax obligations of a sole trader on the Australian Taxation Office (ATO) website.
  • Visit our Changing from a sole trader to a company section for a comparison of the differences between a sole trader and a company business structure.
  • Find out more about registration and licences, including registering for an Australian Business Number (ABN) to get set up as a sole trader.
  • Read our New businesses page for steps on how to get started.

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