Sole Trader

Operating as a sole trader means there's no separate legal entity standing between you and the business — you use your own individual TFN for tax purposes, though you still need to obtain an ABN to trade, and every dollar of business income and every deductible business expense flows straight into your personal tax return alongside your other income. Business profits are taxed at your individual marginal rates rather than a flat company rate, and because there's no legal separation, you're personally liable for all business debts — a creditor can pursue your personal assets, not just business assets, if the business can't pay what it owes.

In day-to-day terms, a sole trader needs to register for GST once annual turnover reaches $75,000, after which point invoices need to include GST and quarterly BAS lodgements become a regular obligation. Deductible business expenses — home office costs, vehicle expenses, equipment, supplies, professional development — reduce the taxable business income before it's combined with any other income on the personal return, and the ATO expects records of all income and expenses to be kept for at least five years, which is why most sole traders end up using accounting software rather than a shoebox of receipts.

The trade-off that eventually pushes many sole traders toward a company or trust structure is the interaction between unlimited personal liability, the inability to split income with a spouse or family member, and the individual marginal tax rates — a highly profitable sole trader can end up paying tax at a much higher rate on the top slice of profit than the flat company tax rate for eligible small businesses, even though liability protection and formal registration costs are the trade-off for making that switch. Early on, though, the sole trader structure's simplicity — no separate tax return, no ASIC registration fees, minimal ongoing compliance — is usually the right starting point for a genuinely small operation.