What Is a Sole Trader? ABN, Tax and Invoicing (AU 2026)
What is a sole trader? In Australia you are the business: your own TFN, an ABN and unlimited liability. Tax, GST, super and invoicing rules explained.
What is a sole trader? In Australia, it's an individual running a business in their own right, with no separate legal entity between the person and the business. You keep all the profit, report it on your individual tax return using your own tax file number (TFN), and you are personally liable for every business debt.
The ATO describes it as the simplest and cheapest way to run a business. This is general information, not legal or tax advice, so check your own situation with a registered tax agent.
Sole trader meaning: you are the business
Legally, a sole trader and the business owner are the same person. There's no company in between, so the business's assets are your assets and its debts are your debts. business.gov.au states that the structure has unlimited liability and your personal assets are at risk if things go wrong.
In practice, that means:
- You own and control everything, including every contract the business signs.
- You can hire staff, but you can't employ yourself. Money you take out is drawings, not a deductible wage.
- You can't split profit with family. It's taxed in your hands alone.
- You keep records for at least 5 years. A separate business bank account is recommended but not required.
What does a sole trader business need to register?
To set up a sole trader business you need an Australian business number (ABN), which is free. You only need to register a business name if you trade under anything other than your own first name and surname.
Applying for an ABN
Apply online through the Australian Business Register at abr.gov.au; it's free. If the ABR can verify your identity (have your TFN ready), a successful application gives you the 11-digit ABN straight away. Applications needing manual review can take 20 business days. You must be running, or taking steps to start, a business to be entitled to one.
Registering a business name
ASIC says you must register a business name if you're not trading under your own name. "Sam Nguyen" doesn't need registering; "Sam Nguyen Electrical" does.
From 1 July 2026 the fee is $47 for 1 year or $108 for 3 years, up from $45 and $104 (business.gov.au). Once registered, you must show your registered business name and ABN on invoices.
How is a sole trader taxed in Australia?
A sole trader's business profit is added to any other income and taxed at individual rates on your individual tax return. There's no separate business tax return; you complete the business items section of your own return.
Resident individual tax rates for 2025–26 (ATO):
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,288 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,288 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,638 plus 45c for each $1 over $190,000 |
These rates don't include the Medicare levy of 2% of taxable income, which applies on top (some people qualify for a reduction or exemption). For 2026–27 (the year that started 1 July 2026) the 16% rate drops to 15%, so the tax on the first $45,000 falls from $4,288 to $4,020.
Example (2025–26): a $70,000 taxable profit with no other income attracts $4,288 + 30% of $25,000 = $11,788 income tax, plus $1,400 Medicare levy, for $13,188 in total before any offsets. Our sole trader tax calculator runs the numbers for your own figures.
PAYG instalments
PAYG instalments are pre-payments of your income tax, usually made quarterly, so you don't face one large bill at tax time. The ATO automatically enters an individual into the system when all of these apply:
- instalment income of $4,000 or more on your latest tax return
- tax payable of $1,000 or more on your latest notice of assessment
- estimated (notional) tax of $500 or more.
The ATO suggests new businesses opt in voluntarily if they expect to pass the threshold. Our BAS due dates guide lists the quarterly deadlines.
When does a sole trader have to register for GST?
You must register for GST within 21 days of your GST turnover reaching $75,000. GST turnover is your gross business income minus GST, not your profit, and it counts if either your current turnover (this month plus the previous 11) or projected turnover (this month plus the next 11) hits the threshold (ATO).
Taxi, limousine and ride-sourcing drivers must register regardless of turnover, as must anyone claiming fuel tax credits. Below the threshold registration is optional, but if you opt in you generally stay registered for at least 12 months. Once registered, you add GST to your prices and lodge a business activity statement (BAS). The GST calculator works out the GST component of any price.
Do sole traders have to pay super for themselves?
No. As a sole trader you don't have to pay the super guarantee for yourself. You can make personal super contributions and claim a tax deduction for them, as long as you notify your fund first (ATO).
If you employ staff, their super is compulsory. The super guarantee rate is 12%, and since 1 July 2026 Payday Super means contributions must be paid with each pay run and generally reach the employee's fund within 7 days of payday.
What insurance does a sole trader need?
Few types of insurance are compulsory for a sole trader with no staff, but the gaps matter. Workers compensation does not cover you as a sole trader, so business.gov.au suggests your own personal death, illness and disability cover.
Other cover to consider (business.gov.au):
- Public liability: required in some states and territories for certain occupations.
- Professional indemnity: mandatory for some professions.
- Workers compensation: compulsory once you employ someone.
- Income protection: replaces part of your income if illness or injury stops you working.
Invoicing as a sole trader
As a sole trader, put your ABN on every invoice and call it a "tax invoice" only if you're registered for GST. If you leave the ABN off, business customers generally have to withhold 47% of the payment.
If you're registered for GST: tax invoice
For sales under $1,000, the ATO says a tax invoice must make 7 details clear:
- that the document is intended to be a tax invoice
- the seller's identity
- the seller's ABN
- the date of issue
- a brief description of what was sold, including quantity (if applicable) and price
- the GST amount (if any), or the statement "Total price includes GST" when GST is exactly one-eleventh of the total
- the extent to which each sale is taxable.
For sales of $1,000 or more, it must also show the buyer's identity or ABN. If a customer asks for a tax invoice, you must provide one within 28 days, unless the sale was $82.50 (including GST) or less. More detail is in what is a tax invoice.
If you're not registered for GST: invoice
The ATO says you must not use the words "tax invoice", and you don't add GST. No law sets out what a regular invoice must contain, but business.gov.au lists common practice: the word "invoice", your business name, ABN, a unique number, the issue date, contact details, a description with quantity and price, payment terms and the buyer's name. Our ABN invoice template follows that layout.
The 47% no-ABN withholding
If you don't quote your ABN to a business customer by the time they pay, they must generally withhold 47% and send it to the ATO (ATO). You claim it back in your tax return. Exceptions include payments of $75 or less (excluding GST) and hobby or private supplies.
The full walkthrough is in how to invoice as a sole trader. For a one-off, use the free invoice generator; for weekly quotes and invoices, InvoiceSonic Pro is A$19 a month with a 7-day trial.
Pros and cons of being a sole trader
A sole trader structure gives you the cheapest set-up, the least paperwork and full control. The trade-off is unlimited personal liability and individual tax rates that climb to 45%.
| Pros | Cons |
|---|---|
| Free ABN, low or no registration costs | Unlimited liability: personal assets at risk |
| Use your own TFN and individual tax return | Profit taxed at individual rates (up to 45% plus Medicare) |
| Fewer reporting requirements | Can't split income with family members |
| Full control of decisions and assets | Can't employ yourself or pay yourself a deductible wage |
| Easy to change structure later | No super unless you contribute yourself |
When should a sole trader consider a company?
Consider a company when your profit is high enough that you'd leave some in the business, when your work carries serious liability risk, or when you want to bring in shareholders. Otherwise the extra cost and paperwork usually outweigh the benefit.
The tax trigger is the gap in rates. Above $45,000, each extra dollar of sole trader profit is taxed at 30% plus 2% Medicare levy, while a base rate entity company pays 25%. But company profit belongs to the company, and money taken out other than as salary, director fees or dividends can be taxed as an unfranked dividend under Division 7A. A company also costs $636 to register and $342 a year in ASIC fees (from 1 July 2026), and if most of your income comes from your own skills or effort, the personal services income rules can attribute it back to you anyway.
Weighing up a company instead? See sole trader vs company for the costs, tax and a worked example.
Frequently asked questions
Is a sole trader the same as being self-employed?
Mostly, yes. A sole trader is one type of self-employed person: an individual running a business with their own ABN. A self-employed person could also trade through a partnership, company or trust, which have different tax and liability rules.
How much can a sole trader earn before paying tax?
For Australian residents, the first $18,200 of taxable income is tax-free in both 2025–26 and 2026–27. Taxable income is your business profit plus any other income, such as wages. The 2% Medicare levy may also apply, with reductions for some lower-income earners.
Do I need a business name to be a sole trader?
No. You only need to register a business name with ASIC if you trade under a name other than your own first name and surname. From 1 July 2026 registration costs $47 for 1 year or $108 for 3 years. You need an ABN either way.
Do sole traders have to charge GST?
Only once you're registered for GST. Registration is compulsory within 21 days of your GST turnover reaching $75,000, and immediately for taxi and ride-sourcing drivers. If you're not registered, don't add GST to your prices and don't call your invoices tax invoices.
Can a sole trader have employees?
Yes. You then take on employer obligations such as PAYG withholding, 12% super guarantee paid with each pay run under Payday Super, and workers compensation insurance. You still can't employ yourself.
What happens if I invoice without an ABN?
A business customer will generally have to withhold 47% of the payment and send it to the ATO, unless an exception applies, such as a payment of $75 or less excluding GST. You claim it back as a credit in your tax return, but your cash flow suffers in the meantime.
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