Sole trader
The simplest business structure — you and the business are one.
A sole trader is the simplest way to run a business: you trade under your own name or a business name using your personal Tax File Number and an ABN. Business income is your income, taxed at your marginal rate, and you report it in your personal return. It’s cheap to set up, though you’re personally responsible for the business’s debts.
As a sole trader you generally lodge one tax return, can register for GST when turnover hits $75,000, and can claim work-related expenses as deductions.
Worked example
You earn $90,000 from clients and have $15,000 of deductible business expenses. You’re taxed on the $75,000 profit at your personal marginal rates — there’s no separate company rate, and the business doesn’t lodge its own return.
Common mistake
Thinking the business is a separate legal person. It isn’t — business debts are your debts, and business profit is your income.
Grounded in ATO guidance. Figures last checked . General information, not tax advice.
Related terms
ABN (Australian Business Number)
The 11-digit number that identifies your business.
Sole trader tax rate
There isn’t one — you’re taxed at personal marginal rates.
Personal services income (PSI)
Income that’s mainly from your skills, not a real business.
TFN (Tax File Number)
Your personal reference number in the tax system.
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Questions about this term
Sole trader: common questions
- Does a sole trader lodge a separate business tax return?
- No — business income is your income. You report it in your personal return under your own Tax File Number, and the profit is taxed at your marginal rate alongside anything else you earn. There is no company rate, and the business does not lodge its own return.
- How is a sole trader’s tax worked out?
- On the profit, at personal marginal rates. Earn $90,000 from clients with $15,000 of deductible business expenses, and you are taxed on the $75,000 profit at the same rates an employee would pay on $75,000 of salary. The income tax calculator on this site estimates the figure for your own profit.
- Am I personally responsible for a sole trader business’s debts?
- Yes — the business is not a separate legal person. Business debts are your debts and business profit is your income. That is the trade-off for a structure that is cheap to set up and needs only your personal Tax File Number and an ABN.
- Can a sole trader claim business expenses?
- Yes — work-related expenses come off as deductions before tax is worked out. That is what turns $90,000 of client income into $75,000 of taxable profit in the example above. A sole trader generally lodges one tax return, can register for GST once turnover hits $75,000, and claims deductions in that same return.
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