What is Sole Trader (Australia)?

Sole trading is the simplest way to start a business in Australia. There is no formal registration with ASIC required — you apply for an ABN and start trading. This simplicity comes with one trade-off: unlimited personal liability and all income taxed at individual (not company) rates.

**Getting started**

1. Apply for an ABN at abr.gov.au — free, usually instant 2. Register a business name with ASIC if you want to trade under a name other than your own legal name (A$44/year or A$102/3 years in 2025) 3. Register for GST if your turnover exceeds or is expected to exceed A$75,000 4. Open a separate business bank account (recommended, not legally required)

**Tax rates and lodgement**

Sole trader income is reported in the individual tax return — not a separate company return. You declare business income and expenses on the 'business and professional items' schedule. Filing deadlines: - 31 October: if you lodge yourself - 15 May (following year): if lodged via a registered tax agent

FY2025–26 tax rates: - A$0–A$18,200: 0% (tax-free threshold) - A$18,201–A$45,000: 16% - A$45,001–A$135,000: 30% - A$135,001–A$190,000: 37% - A$190,001+: 45% - Plus 2% Medicare Levy on taxable income above approximately A$26,000

A sole trader earning A$120,000 net profit pays approximately A$28,197 income tax plus A$2,400 Medicare Levy = A$30,597 total.

**PAYG instalments**

After your first profitable year, the ATO requires quarterly PAYG instalments. These are advance payments of your estimated tax, calculated on the prior year's income. The 'year-two cash flow trap' is real: you owe the prior year's tax bill and start paying instalments for the current year simultaneously. Setting aside 30–35% of profit from day one is the standard advice.

**PSI rules**

If more than 50% of your income comes from your personal skills or effort (IT contractors, consultants, tradespeople), the ATO may classify it as Personal Services Income (PSI). PSI rules restrict certain business deductions and prevent income splitting. You must pass one of the ATO's gateway tests (results test, unrelated clients test, employment test) to treat income as a genuine business.

**Small Business Entity concessions**

Turnover under A$10 million qualifies you as a Small Business Entity (SBE) and unlocks: - Instant asset write-off (full immediate deduction on eligible assets) - Simplified trading stock rules (no stocktake if value unlikely to change by A$5,000+) - Simplified depreciation rules

**Sole trader vs Pty Ltd**

The main reasons to incorporate are: (1) tax savings above approximately A$80,000–A$100,000 profit (company rate 25–30% vs personal rate 37–45%); (2) limited liability protection; (3) ability to pay dividends. Below that profit level, the cost of a company — ASIC fees (A$65/year), accountant fees for a separate return, and added admin — typically outweighs the tax saving.