Sole trader

What is a sole trader?

A sole trader is a simple business structure and gives the owner all the decision making power. They can also hire people if they want to.

Sole trader - is it right for me?

Advantages

Disadvantages

low business name registration fees of $30 (one year), $70 (three years), if you are trading under your business name. Fee is payable to the Australian Securities & Investments Commission (ASIC) simple business structure and documentation full control and ownership of the business, including profits and capital taxation advantages when profits are low comparatively less onerous to close down business losses can be written off your PAYG tax from another job

sole trader bears full responsibility for all losses/liabilities taxation disadvantages are high when profits are higher if the owner gets injured or sick, there could be difficulties in transferring or selling the business sole traders are often time-pressed in trying to find time to strategise their business

 

Note: You're not locked in. Often a small business will start out as a sole trader. Later, when the business grows or changes direction, you can change to a different business structure to suit your circumstances. Complete our quick quiz Step-By-Step: How to register your business to find out which business structure suits your needs best.

 

Get started with our Sole Trader starter pack

• register for a TFN if you are operating as a sole trader and you don't already have a TFN
  
• check that your proposed business name doesn't infringe on existing trademarks - use TM Check to find out
• think about whether you need to register your business name - this task is optional if you are trading under your personal name.
  
• before you could register your business name, you need to sign up for an Australian Business Number (ABN). Find out if you are eligible for an ABN and if so, apply for it with the Australian Business Register
• register your business name with ASIC
  
• protect your business name with IP Australia
• register for GST if you are likely to earn more than $75,000 
• register for PAYG witholding if you are likely to hire and pay staff, or if other businesses (including contractors) didn't quote their ABN when invoicing you
• ensure you are insured correctly and adequately - speak to an insurance broker to assess your business risks

Things to consider

Business name - do you need to register it?

You don't have to register your business name if you use your own personal name. For example, Justine Carey wants to use her own name (i.e. Justine Carey) as a business name. She's not required to register her personal name as a business name, although she can choose to. However, if she adds anything to her personal name (for e.g. Justine Carrey Associates, Justine Carey Mowing), she is legally required to register her  business name, as 'associates' and 'mowing' are not part of her personal name.

You can register your business name with the Australian Securities and Investments Commission (ASIC). Your business name will be registered Australia-wide. The registered business name must be displayed outside the business address, and on all public documents (e.g. letters, invoices and receipts).

 

Protecting your business name - should I do it?

Registering your business does not give you ownership or legal protection of that name.It does not stop another person from registering a similar name nor does it give you the exclusive right to use the name or part of the name. Find out more about how you can protect your business name and ideas in our Protecting Your Business section. If you plan to have an online presence (e.g. a website or doing e-commerce), you should also think about domain name registrations - for more information, visit www.auda.org.au

 

TFN - do I use my own?

A sole trader is taxed as an individual - so their personal Tax File Number (TFN) is also used for income tax purposes. Income or losses from the business is reported in their personal tax return. Income tax is paid at personal tax rates.You need to register for a TFN if you don't have one already.

 

ABN - do I need to apply for it? 

An Australian Business Number (ABN) is a unique 11 digit identifier that helps the government and other businesses to confirm your identity easily. Applying for an ABN is optional for sole traders - the Australian Business Register sets out certain criteria for sole traders to see if they are eligible for an ABN. However, it is compulsory to apply for an ABN if you are collecting GST.

Note: If you do not have an ABN and cannot quote an ABN on your invoices, other businesses which make payments to you are legally required to withhold 46.5% of those payments.

 

GST - do I need to register for it?

If a sole trader wants to collect Goods and Services Tax (GST), he/she needs to register for it. GST registration is compulsory when gross income passes $75,000. (Some businesses register for GST when they first set up to simplify bookkeeping as the business grows.)

 

Insurance - is it worth getting?

A sole trader owns all the business assets and is responsible for the liabilities of the business. 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).

Read more about liability and insurance in our Insurance section. 

Need further help?

• use the Australian Business Licences and Information Services (ABLIS) to help you find the licences and registrations your business needs and build a personalised information pack to save, email or view online
• our Step-By-Step: Choose the best business structure for you can give you a simple & quick assessment of which structure is more suitable for your business
  
• our Find an Adviser search service can help you locate an accountant or lawyer in your area  to help you on tasks such as applying for ABN,TFN and PAYG witholding
  
• Business Victoria's Starting Your Own Business workshops will help you to find out what you need to do before you set up your business
• Ring up Victoria Business Line on 13 22 15 if you need further help.