Published: August 2025

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Starting a business as a sole trader in Australia is an accessible and popular option for small and medium business owners, freelancers, and entrepreneurs. As a sole trader, you operate your business as an individual, retaining full control and responsibility.

In 2025, with over 2.5 million sole traders contributing to Australia’s economy (according to Australian Bureau of Statistics data), this structure remains a flexible way to launch a venture. This step-by-step checklist outlines the process to become a sole trader in Australia, ensuring compliance with legal and tax requirements while setting you up for success.

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What is a Sole Trader?

A sole trader is an individual who owns and runs their business, bearing full responsibility for its debts and obligations. Unlike companies, sole traders have no separate legal entity, meaning personal and business finances are intertwined. This structure suits small businesses, such as freelancers, tradespeople, or consultants, due to its low setup costs and minimal administrative requirements. However, sole traders face unlimited liability, so personal assets may be at risk if the business incurs debts.

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Why Choose a Sole Trader Structure?

• Simplicity: Easy to set up with minimal paperwork compared to companies or partnerships.
• Control: You make all decisions without needing to consult partners or shareholders.
• Cost-Effective: Low registration and ongoing compliance costs.
• Flexibility: Ideal for testing a business idea, with 60% of Australian sole traders starting part-time (2024 ATO data).

However, consider the risks of unlimited liability and limited scalability compared to other structures like companies.

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Step-by-Step Checklist to Become a Sole Trader in Australia

Follow these steps to establish your sole trader business in 2025, ensuring compliance with Australian regulations.

Step 1: Choose a Business Name

Select a unique name that reflects your brand and complies with Australian Securities and Investments Commission (ASIC) guidelines. You can trade under your legal name (e.g., “Jane Smith”) or register a business name for a distinct identity (e.g., “Jane’s Gardening Services”).

• Action: Check name availability on ASIC’s website at https://asic.gov.au/for-business/registering-a-business-name/. Registration costs approximately $42 for one year or $98 for three years (2025 rates).
• Example: A Melbourne-based graphic designer might register “Creative Designs by Sarah” to build a professional brand.

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Step 2: Register for an Australian Business Number (ABN)

An ABN is a unique 11-digit identifier required for tax and business dealings. It’s free and mandatory if you’re operating a business.

• Action: Apply through the Australian Business Register at https://www.abr.gov.au/business/register-abn. You’ll need your Tax File Number (TFN) and personal details.
• Eligibility: You must demonstrate a genuine business activity, such as selling goods or services, not just a hobby.
• Example: A Sydney plumber applies for an ABN to issue invoices and claim tax deductions for tools.

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Step 3: Register for Goods and Services Tax (GST) if Necessary

If your annual turnover exceeds $75,000 (or $150,000 for non-profits), you must register for GST. Voluntary registration is an option for lower turnovers to claim GST credits.

• Action: Register for GST via the ATO at https://www.ato.gov.au/Business/GST/Registering-for-GST/. Include your ABN and expected turnover.
• Example: A Brisbane caterer with $80,000 projected turnover registers for GST to charge 10% on invoices and claim input credits.

Use our free GST calculator here

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Step 4: Open a Separate Business Bank Account

While not legally required, separating business and personal finances simplifies accounting and tax reporting.

• Action: Choose a bank account with low fees, such as those offered by major Australian banks or online providers. Provide your ABN for setup.
• Example: A Perth consultant opens a business transaction account to track income from freelance projects, ensuring clear records for tax time.

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Step 5: Understand Your Tax Obligations

As a sole trader, you report business income on your personal tax return, paying tax at individual rates (0% up to $18,200, rising to 45% over $190,000 in 2025-26).

• Key Taxes:
  • Income Tax: Lodge annually via myGov or a tax agent. Use the ATO’s tax calculator at https://www.ato.gov.au/Calculators-and-tools/Tax-withheld-calculator/.
  • GST: If registered, lodge Business Activity Statements (BAS) monthly, quarterly, or annually.
  • PAYG Instalments: Prepay tax on business income if expected tax exceeds $1,000. Set up via the ATO.
• Action: Keep records of income and expenses. Consider software like MYOB or Xero for compliance.
• Example: An Adelaide tutor earning $50,000 annually claims deductions for a laptop ($1,200) and internet costs ($600), reducing taxable income.

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Step 6: Obtain Necessary Licenses and Permits

Depending on your industry, you may need specific licenses or permits.

• Action: Check requirements via the Australian Business Licence and Information Service (ABLIS) at https://ablis.business.gov.au/. Common licenses include food handling for cafes or trade licenses for electricians.
• Example: A Queensland hairdresser applies for a local council permit to operate a home-based salon.

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Step 7: Arrange Insurance

Protect yourself from risks like liability or income loss. Common insurances include:

• Public Liability Insurance: Covers claims for injury or damage (e.g., $5-20 million coverage).
• Income Protection Insurance: Replaces income if you’re unable to work due to illness.
• Action: Compare policies through insurers like Allianz or CGU.
• Example: A Canberra tradie secures $10 million public liability insurance to cover potential property damage during renovations.

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Step 8: Set Up Record-Keeping Systems

Accurate records are essential for tax compliance and business management.

• Action: Use digital tools like spreadsheets or accounting software. Retain records for five years, as required by the ATO.
• Example: A Hobart photographer tracks client payments and equipment expenses in QuickBooks, simplifying BAS preparation.

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Step 9: Understand Superannuation Obligations

Sole traders are not required to pay themselves superannuation but can make voluntary contributions to boost retirement savings.

• Action: Set up a super fund and make concessional contributions (up to $30,000 annually in 2025, tax-deductible). Visit https://www.ato.gov.au/Individuals/Super/ for details.
• Example: A Melbourne freelancer contributes $5,000 annually to super, claiming a tax deduction to reduce taxable income.

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Step 10: Plan for Growth and Compliance

Regularedly review your business structure and obligations as your income grows.

• Action: Consult a tax agent or accountant annually. Consider transitioning to a company structure if turnover exceeds $500,000 or liability risks increase.
• Example: A Sydney fitness trainer hires an accountant to review BAS and plan for potential incorporation after doubling revenue.

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Common Mistakes to Avoid

• Not Registering for GST When Required: Delaying past $75,000 turnover can lead to ATO penalties.
• Mixing Finances: Using personal accounts for business transactions complicates tax reporting.
• Ignoring Licenses: Operating without required permits risks fines, e.g., $7,000 for unpermitted food businesses.
• Poor Record-Keeping: Inaccurate records can trigger ATO audits, with penalties up to 75% of underpaid tax.

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Q&A

Do I need an ABN to operate as a sole trader in Australia?

Yes, an ABN is required for business activities, such as issuing invoices or claiming deductions. Apply at https://www.abr.gov.au/business/register-abn.

Is GST registration mandatory for sole traders?

Only if your annual turnover exceeds $75,000. Voluntary registration allows claiming GST credits. Check https://www.ato.gov.au/Business/GST/.

Can I claim business expenses as a sole trader?

Yes, expenses like equipment, travel, or home office costs are deductible if related to earning income. Keep records for five years.

Do sole traders pay superannuation?

You’re not required to pay yourself super, but voluntary contributions are tax-deductible up to $30,000 in 2025. Visit https://www.ato.gov.au/Individuals/Super/.

What happens if I don’t register a business name?

You can trade under your legal name, but a registered business name enhances branding and is required for distinct names. Register at https://asic.gov.au/for-business/registering-a-business-name/.

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Scale Suite Services for Sole Traders

For Australian small business owners setting up as sole traders, Scale Suite offers tailored solutions such as bookkeeping and BAS obligations. Contact us for more information.