Sole Trader in Australia (2026): How to Set Up, What Tax You Pay and When to Become a Company

Most Australian businesses start as a sole trader — a tradie with a ute, a freelance designer, a mobile groomer, a market stallholder. It's the cheapest and simplest structure, but it means you are the business: its profit is your income, and its debts are your debts. This guide shows you how to set up as a sole trader in 2026, how much tax you'll pay under the 2026-27 rates (with a full A$ example), how PAYG instalments and super work for the self-employed, and the signs it's time to move to a company.

Quick answer

A sole trader is one person trading in their own right. You need a free ABN (applied for with your own TFN), a business name only if you trade under a name other than your own, and GST registration once turnover reaches A$75,000. Profit is taxed at individual rates on your personal return; you have unlimited liability; and nobody pays super for you unless you do.

• 2026-27 rates: nil to A$18,200, then 15%, 30%, 37%, 45% + 2% Medicare levy

• Small business income tax offset: up to A$1,000 a year

• PAYG instalments start once your return shows A$4,000+ of business income and A$1,000+ tax payable

• Personal super contributions are deductible up to the A$32,500 concessional cap

What a sole trader is (and isn't)

In law a sole trader isn't a separate entity at all. It's you, carrying on a business in your own name or under a registered business name. You own every asset, sign every contract personally and keep all the profit after tax. business.gov.au describes it as the simplest and cheapest structure, with full control of decisions and fewer reporting requirements than a company.

The trade-off is in three places:

• Liability is unlimited. If the business can't pay a supplier, a landlord or a court judgment, creditors can pursue your personal assets — savings, car, even your home.
• You can't split income. A company or trust can pay profits to family members in some circumstances; a sole trader's profit is taxed entirely in your hands.
• No one pays you super or holiday pay. You fund your own retirement, sick days and leave.

A sole trader can still employ staff, have several business activities under one ABN, and trade anywhere in Australia. If two or more people own the business together, it's a partnership rather than two sole traders.

How to set up as a sole trader, step by step

Becoming a sole trader in 2026

1. 1

   Confirm it's a business

   You need to be carrying on an enterprise — regular, organised activity aimed at profit — to be entitled to an ABN. A hobby or one-off sale isn't enough.

2. 2

   Apply for an ABN with your own TFN

   Apply free through the Australian Business Register or the Business Registration Service. Many applications are approved instantly; manual checks can take up to 20 business days.

   Our ABN registration guide
3. 3

   Register a business name if you need one

   Required only if you trade under anything other than your own name. A$47 for 1 year or A$108 for 3 years with ASIC.

   Business name registration guide
4. 4

   Decide on GST

   Register within 21 days of reaching A$75,000 GST turnover; taxi and ride-sourcing drivers register from day one.

5. 5

   Check licences and insurance

   Use ABLIS for licences and council permits. Consider public liability, professional indemnity and personal income protection.

6. 6

   Separate your money and keep records

   Open a business bank account, use accounting software and keep records for at least five years.

You can tick GST and PAYG withholding in the same Business Registration Service session if they already apply. If you're leaving a job, tell your employer's payroll if you'll still have a part-time role, because you should claim the tax-free threshold from only one payer, and your business income will be added on top at tax time.

Business names catch many people out. "Sam Taylor Plumbing" needs registration because it adds a word to your name; "Sam Taylor" alone doesn't. Registration doesn't stop anyone else using a similar name in other contexts — only a trade mark gives you exclusive rights — so check IP Australia before you invest in branding. Our complete start-up guide covers licences, insurance and grants in more detail.

Sole trader tax rates for 2026-27

Sole traders don't have their own tax rate. Your net business profit is added to wages, interest and any other income, and the total is taxed at the individual resident rates. From 1 July 2026 the rate on income between A$18,201 and A$45,000 fell from 16% to 15%, under the Treasury Laws Amendment (More Cost of Living Relief) Act 2025. The same Act cuts it again to 14% from 1 July 2027.

Most people also pay the 2% Medicare levy on their taxable income (reduced or nil on low incomes), and may owe the Medicare levy surcharge if they earn above the surcharge thresholds without private hospital cover.

Two concessions reduce tax specifically for sole traders:

• Small business income tax offset. If your business's aggregated turnover is under A$5 million, you get an offset of 16% of the tax on your net small business income, capped at A$1,000 a year. It's calculated automatically when you complete the business section of your return.
• Instant asset write-off. With turnover under A$10 million, you can deduct the business portion of each eligible asset costing less than A$20,000 in the year you start using it. The ATO confirms this is permanent from 1 July 2026.

Worked example: A$90,000 profit in 2026-27

Chloe is a freelance graphic designer in Melbourne. She has no other income. In 2026-27 her clients pay A$118,000 (excluding GST) and her deductible expenses — software, a co-working desk, a laptop written off under the instant asset write-off, insurance, phone and accounting — come to A$28,000. Her net business profit and taxable income is A$90,000.

Chloe's 2026-27 tax bill

1. 1

   Income tax

   A$4,020 + 30% × (A$90,000 − A$45,000) = A$4,020 + A$13,500 = A$17,520.

2. 2

   Medicare levy

   2% × A$90,000 = A$1,800.

3. 3

   Small business income tax offset

   16% of the tax on her business income is about A$2,803 — above the cap, so she gets the maximum A$1,000.

4. 4

   Total

   A$17,520 + A$1,800 − A$1,000 = A$18,320, or about 20% of her profit.

   Tip: Under the 2025-26 rates (16% band), the income tax line would have been A$17,788 — the 2026-27 cut saves Chloe A$268.

Because Chloe's turnover is over A$75,000, she must also be registered for GST. The A$118,000 is her income excluding GST: she actually invoices A$129,800 and pays the extra A$11,800 (less GST credits on her expenses) to the ATO through her BAS. GST isn't income tax, but it's money you must hold back — our GST in Australia guide explains the BAS cycle.

PAYG instalments: paying tax during the year

Nobody withholds tax from a sole trader's income, so in your first year you'll usually pay all your tax in one hit when your assessment comes. After that, the ATO generally moves you into PAYG instalments — regular prepayments towards the coming year's tax. For individuals, entry is automatic when your latest return shows business and investment (instalment) income of A$4,000 or more, tax payable of A$1,000 or more, and estimated notional tax of A$500 or more.

Most sole traders pay instalments quarterly, either as an amount the ATO calculates from last year's return, or by applying an instalment rate to the income they earned in the quarter. Quarterly instalments are reported on your activity statement and generally fall due on 28 October, 28 February, 28 April and 28 July. If your income drops, you can vary the amount or rate — but if you vary it too low you may pay the general interest charge.

The trap in year two is a double hit: you pay the balance of last year's tax and the first instalments of this year at around the same time. The fix is simple — from day one, put a fixed share of every payment into a separate tax account. For Chloe, setting aside about 21% of profit (plus all GST collected) would have covered both.

PAYG instalments are different from PAYG withholding, which is tax you take out of employees' wages. If you hire staff, see our PAYG withholding guide.

Sole trader numbers to know (2026)

A$4,000

Instalment income that triggers PAYG instalments

with A$1,000+ tax payable

28 Oct · 28 Feb · 28 Apr · 28 Jul

Usual quarterly instalment and BAS due dates

A$1,000

Maximum small business income tax offset

A$32,500

Concessional super cap from 1 July 2026

Super for sole traders

The super guarantee doesn't apply to your own earnings as a sole trader — the ATO is clear that self-employed people don't have to pay super for themselves. business.gov.au still encourages it, because without contributions you'll reach retirement with only what you built in past jobs.

The tax treatment makes contributing attractive. If you pay money from your bank account into your super fund and then lodge a notice of intent to claim a deduction with the fund, you can usually deduct the contribution on your personal return. The fund taxes it at 15% instead of your marginal rate. You must receive the fund's written acknowledgment before you claim, and lodge the notice by the earlier of the day you lodge your return or the end of the following financial year. If you're aged 67 to 74 you also need to meet the work test or an exemption.

Deductible contributions count toward the concessional cap of A$32,500 from 1 July 2026, along with any employer contributions from a job you also hold. Unused cap amounts from earlier years may be carried forward if your total super balance is under the relevant limit.

Example, continued: if Chloe contributes A$10,000 and claims it, her taxable income falls to A$80,000. Her income tax drops to A$14,520 and her Medicare levy to A$1,600, so her personal tax (after the A$1,000 offset) is A$15,120 — A$3,200 less than before. The fund pays 15% contributions tax of A$1,500, so she's A$1,700 better off overall and has A$8,500 more invested for retirement.

Two tax rules that catch sole traders

Personal services income (PSI)

If most of your income is a reward for your own skills or effort — common for IT contractors, consultants, engineers and other professionals — the PSI rules may apply. When they do, you can't claim certain deductions (such as rent on a home office or payments to a spouse for support work), and income can't be diverted to others. You avoid the rules if you can self-assess as a personal services business: either you meet the results test for at least 75% of your PSI (paid for a result, supply your own tools, liable to fix defects), or less than 80% of your PSI comes from one client and you pass another test, such as the unrelated clients test.

Non-commercial losses

A loss in your first years is common, but you can't automatically offset a sole trader business loss against your wages. Your income for these purposes must be under A$250,000, and you must pass one of four tests: assessable business income of at least A$20,000; a profit in three of the past five years; real property used in the business worth at least A$500,000; or other business assets worth at least A$100,000. If you fail, the loss is deferred and offset against future profit from the same activity.

Do sole traders have to register for GST?

Only once your GST turnover — your business income excluding GST, not your profit — reaches or is expected to reach A$75,000 in a 12-month period. The test runs both ways: the current month plus the previous 11, or the current month plus the next 11. When either crosses the line, you have 21 days to register. Taxi and ride-sourcing drivers are the exception and must register from their first fare.

Below the threshold, registering is optional. It usually makes sense if your customers are GST-registered businesses, because they claim back the 10% you charge and you can claim GST on your own equipment and expenses. It usually doesn't if you sell mainly to consumers, because your prices rise by a tenth or your margin shrinks. Registering also means lodging a BAS, typically quarterly. If you have income from several activities under your one sole trader ABN — say freelance writing and a weekend market stall — the turnover from all of them counts together. Price your services both ways with our Australia GST calculator before you decide.

Liability, insurance and protecting yourself

Because there's no legal separation, a sole trader's biggest risk isn't tax — it's a claim or debt larger than the business can pay. Practical protections:

Protect yourself as a sole trader

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• Public liability insurance — legally required for some occupations in some states, and often demanded by landlords, markets and contracts
• Professional indemnity insurance — covers claims that your advice or work caused loss; mandatory for some professions
• Income protection or personal accident cover — workers compensation doesn't cover you as a sole trader
• Written terms with clients, including payment terms and limits of liability where the law allows
• Avoid personal guarantees where you can, and read lease and equipment finance terms closely

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If you employ anyone, you must hold workers compensation insurance for them through your state or territory scheme.

When to switch from sole trader to a company

Sole trader vs company in 2026

	Sole trader	Company
Set-up cost	ABN free	ASIC A$636 + director ID
Yearly government fee	None (business name renewal if used)	ASIC annual review A$342
Tax on profit	Your marginal rate, up to 45% + Medicare levy	25% (base rate entity) — no tax-free threshold
Tax-free threshold	Yes — A$18,200	No
Small business offset	Up to A$1,000	Not available
Liability	Unlimited	Generally limited to the company
Paying yourself	Drawings — no PAYG or super	Wages (with PAYG and super) or franked dividends
Admin	Personal return with business schedule	Company return, ASIC obligations, director duties

Set-up cost

Sole trader

ABN free

Company

ASIC A$636 + director ID

Yearly government fee

Sole trader

None (business name renewal if used)

Company

ASIC annual review A$342

Tax on profit

Sole trader

Your marginal rate, up to 45% + Medicare levy

Company

25% (base rate entity) — no tax-free threshold

Tax-free threshold

Sole trader

Yes — A$18,200

Company

No

Small business offset

Sole trader

Up to A$1,000

Company

Not available

Liability

Sole trader

Unlimited

Company

Generally limited to the company

Paying yourself

Sole trader

Drawings — no PAYG or super

Company

Wages (with PAYG and super) or franked dividends

Admin

Sole trader

Personal return with business schedule

Company

Company return, ASIC obligations, director duties

A company's 25% rate looks cheaper than Chloe's 30% bracket, but the comparison is misleading if you spend everything you earn. Profit paid out to you as a dividend is taxed again at your marginal rate, with a franking credit for the company tax already paid, so the overall tax ends up similar. A company saves tax mainly on profit you leave in the business to reinvest.

Signs it may be time to switch:

• Profit is consistently above what you need to live on, and you'd retain the surplus.
• You're entering contracts, hiring staff or using premises where a claim could exceed your insurance.
• Investors or partners want to own a share.
• Large clients or government tenders prefer dealing with a company.

Moving to a company is a restructure: the new company needs its own ABN and TFN, and transferring assets, goodwill or contracts can have tax consequences, although small business restructure roll-over relief may be available. Get an accountant to model your numbers before you register.

Common sole trader mistakes

• Not saving for tax. Year two brings last year's bill and the first instalments together.
• Paying yourself a "wage". Drawings aren't deductible and don't need PAYG.
• Mixing accounts. Personal and business spending in one account makes deductions hard to prove.
• Ignoring GST until the ATO notices. If you cross A$75,000 and register late, GST can be backdated.
• Assuming a business name protects your brand. It doesn't; a trade mark does.
• Claiming losses against wages without checking the non-commercial loss rules.

Official links

• business.gov.au — sole trader
• Business Registration Service (ABN, business name, GST)
• ATO — tax rates for Australian residents
• ATO — small business income tax offset
• ATO — PAYG instalments
• ATO — super for sole traders and partnerships
• ATO — notice of intent to claim a deduction for personal super

What to do next

Apply for your ABN, decide whether you need a business name, and set up a separate account with a tax savings bucket from your first invoice. Work out a rate that covers tax, super and unpaid time with our hourly rate calculator, send professional invoices with the invoice generator, and read the full guide to starting a business in Australia for licences, insurance and grants.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

How do I become a sole trader in Australia?

Apply for a free ABN through the Australian Business Register or the Business Registration Service using your own tax file number. Register a business name with ASIC only if you'll trade under a name other than your own. Then check licences on ABLIS, register for GST if turnover will reach A$75,000, open a separate bank account and start keeping records.

How much tax does a sole trader pay in Australia?

Sole traders pay individual income tax on their business profit plus other income. For 2026-27 the first A$18,200 is tax-free, then 15% to A$45,000, 30% to A$135,000, 37% to A$190,000 and 45% above, plus the 2% Medicare levy. On A$90,000 of profit that's about A$18,320 after the small business offset.

Does a sole trader have to pay super for themselves?

No. Sole traders don't pay the super guarantee for themselves, but they can make personal contributions and usually claim a tax deduction for them. You must give your fund a notice of intent and receive its acknowledgment before claiming. Deductible contributions count toward the A$32,500 concessional cap and are taxed at 15% in the fund.

Can a sole trader employ staff?

Yes. A sole trader can hire employees, but then has the same obligations as any employer: register for PAYG withholding, report through Single Touch Payroll, pay 12% super with every pay under Payday Super, and take out workers compensation insurance. You can't employ yourself — money you take out is a drawing, not a wage.

When should a sole trader switch to a company?

Consider a company when your profit regularly exceeds what you need to live on, so retained profit can be taxed at the 25% base rate instead of your marginal rate, or when the business carries risks you don't want to bear personally. A company costs A$636 to register plus A$342 a year and more accounting, so get advice first.

Is a sole trader personally liable for business debts?

Yes. A sole trader and the business are the same legal person, so liability is unlimited. If the business can't pay a debt, a court judgment or bankruptcy can reach your personal assets, including your home. Insurance such as public liability and professional indemnity reduces some risks, but it doesn't protect you from ordinary trading debts.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 7 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Sole trader — business.gov.au · accessed 7 October 2026
2. 2.Tax differences between a sole trader and a company — business.gov.au · accessed 7 October 2026
3. 3.Tax rates – Australian residents — Australian Taxation Office · accessed 7 October 2026
4. 4.Personal income tax – new tax cuts for every Australian taxpayer — Australian Taxation Office · accessed 7 October 2026
5. 5.Small business income tax offset — Australian Taxation Office · accessed 7 October 2026
6. 6.PAYG instalments — Australian Taxation Office · accessed 7 October 2026
7. 7.Super for sole traders and partnerships — Australian Taxation Office · accessed 7 October 2026
8. 8.Contributions caps — Australian Taxation Office · accessed 7 October 2026
9. 9.Notice of intent to claim or vary a deduction for personal super contributions — Australian Taxation Office · accessed 7 October 2026
10. 10.Offset or defer the loss (non-commercial losses) — Australian Taxation Office · accessed 7 October 2026
11. 11.Self-assessing as a PSB — Australian Taxation Office · accessed 7 October 2026
12. 12.Company tax rate changes — Australian Taxation Office · accessed 7 October 2026
13. 13.$20,000 instant asset write-off (IAWO) here to stay — Australian Taxation Office · accessed 7 October 2026