Thinking about starting your own business as a sole trader in Australia? Before you can legally operate or earn income under your business name, there are a few tax registration boxes you’ll need to tick. The good news is, it’s relatively straightforward, and you don’t need a background in tax or accounting to get started.
This guide walks you through every tax-related step involved in setting up a sole proprietorship in Australia, from getting an ABN to registering for GST, in plain language. By the end, you’ll know exactly what to do and why it matters.
What Is a Sole Proprietorship?
A sole proprietorship, also known as a sole trader, is the simplest and most common business structure in Australia. It means that you are the owner and operator of the business, and there’s no legal distinction between you and the business itself. You earn the income, you claim the deductions, and you’re personally liable for any debts.
It’s a great starting point for freelancers, tradies, consultants, online sellers, and small business owners who want a simple structure without the complexities of running a company.
What Tax Registrations Do Sole Traders Need?
Let’s get straight to it. To set up your sole proprietorship and meet your tax obligations, you’ll likely need to register for the following:
Australian Business Number (ABN)
The ABN is your business’s ID number. It’s a unique 11-digit number that identifies your business to the government and the public. Without an ABN, you can’t register a business name, invoice clients properly, or avoid having tax withheld from your income at the top marginal rate.
When do you need it?
As soon as you start trading or intend to. Even if you’re just invoicing one client, you’ll need an ABN.
How to apply?
You can apply for an ABN online through the Australian Business Register (ABR) website. It’s free and usually processed within minutes.
Tax File Number (TFN)
If you’re already an Australian resident, you probably already have a TFN. But it’s worth noting that you’ll use your personal TFN to lodge your sole trader tax return, since the business income is taxed in your name.
No separate TFN needed for the business—you’re not a company, so you report business income as part of your personal tax return.
Find out more at the ATO TFN information page.
Goods and Services Tax (GST)
GST is a 10% tax added to most goods and services sold in Australia.
Do you need to register for GST?
Only if your annual business turnover is $75,000 or more. If you’re under that threshold, GST registration is optional. However, some industries (like taxi and rideshare drivers) must register regardless of income.
When to register?
As soon as you expect to cross the threshold. The ATO can charge penalties for late registration.
What does it involve?
You’ll need to charge GST on your sales, lodge Business Activity Statements (BAS), and pay the GST collected to the ATO.
Pay As You Go (PAYG) Instalments
If you expect to earn a decent income from your business, the ATO might place you into the PAYG instalment system. This means you’ll pay your tax in small chunks throughout the year instead of a big amount at the end.
Do you register for it yourself?
Not usually. The ATO will let you know if you need to pay PAYG instalments, based on your prior year’s tax return.
Optional But Common: Business Name Registration
If you want to trade under a name other than your personal legal name, for example, “Jess’s Web Design” instead of “Jessica Lee”—you’ll need to register that business name.
Important: You must have an ABN before registering a business name. You can register your business name through ASIC (Australian Securities and Investments Commission) for a small fee.
A Simple Example: Meet Sam the Sole Trader
Let’s say Sam is a freelance graphic designer in Sydney. He’s just left his job and wants to work for himself. Here’s how he sets up his business:
- Gets an ABN using his legal name.
- Uses his personal TFN for tax purposes.
- Decides not to register for GST yet, as he expects to earn under $75,000 in his first year.
- Registers a business name “Sam Sketches” so he can use that on his invoices and website.
A few months in, Sam’s business takes off and he starts earning over $75,000 annually. At this point, he registers for GST and begins lodging BAS quarterly.
What Are Your Tax Responsibilities as a Sole Trader?
After registering, you’ll need to stay on top of your tax obligations:
Lodge an Annual Tax Return
Even though you’re running a business, you’ll use your individual tax return to report your business income and expenses. You can claim deductions for any business-related costs, like software, internet, travel, and even part of your home office.
Keep Good Records
The ATO requires you to keep records of all your income and expenses for at least five years. That includes invoices, receipts, and bank statements.
Using accounting software or even a well-organised spreadsheet can make this much easier.
Lodge BAS (if GST-registered)
If you’re registered for GST, you’ll need to submit a Business Activity Statement—usually quarterly. This is where you report the GST you’ve collected and claim GST credits on business expenses.
When to Get Help
Even as a sole trader, tax can get complex quickly, especially if you’re growing or earning a higher income. A registered tax agent or accountant can help make sure you’re claiming everything you’re entitled to, staying compliant, and planning ahead for tax time.
You don’t need to do everything yourself, getting support early can save you from headaches (and fines) later.
You can find a registered agent via the Tax Practitioners Board.
Wrapping It All Up
Setting up a sole proprietorship in Australia involves a few key tax registrations: an ABN is essential, your TFN is used for tax returns, and GST registration is needed once your turnover hits $75,000. PAYG instalments and business name registration may also apply, depending on your circumstances.
The process is simple, especially when you break it down step by step. With the right registrations in place, you’ll be free to focus on growing your business, confident that your tax foundations are solid.
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