Being a sole trader is the simplest way to start a business in Australia. The structure offers full control and minimal setup costs but comes with real risks, particularly unlimited personal liability and no employer-funded protections.

This guide covers the main pros and cons, real examples of sole trader businesses, and what sole traders need to consider about insurance.

At a glance

1. Pros: Simple to set up, full control, keep all profits, flexible, minimal compliance overhead.
2. Cons: Unlimited personal liability, no workers comp for yourself, harder to scale, limited access to funding.
3. Australia's sole trader market is estimated at 1.7 million people (Hnry Sole Trader Pulse, March 2026).
4. Best for: Freelancers, tradies, consultants, and service businesses with manageable liability and steady individual income.

What Is a Sole Trader?

A sole trader is an individual who runs a business in their own name or under a registered business name. There is no separation between you and your business ,  you are legally the same. You own every asset and carry every liability personally.

For a full explanation of what a sole trader is, how to register for an ABN, and how the structure compares to other business types, see what is a sole trader?

Pros of Being a Sole Trader in Australia

1. Simple and inexpensive to set up. Registering as a sole trader requires an ABN and, if trading under a name that is not your own, a business name registration through ASIC. No ASIC incorporation fees, no constitution, no share structure. Most people are operational within a day.
2. Full control over decisions. All business decisions are made by you alone. No partners, shareholders, or directors to consult. The ability to pivot, change direction, or adjust pricing happens immediately without approval processes.
3. Keep all profits. There are no shareholders or partners with a claim on the profit. Every dollar the business earns belongs to you.
4. Simple tax structure and potential tax advantages. Business income is reported on your personal income tax return. No separate company tax return. For the 2025-26 financial year, individual marginal rates range from 0% on the first $18,200 to 45% on income above $190,000 (plus 2% Medicare levy), based on ATO published rates. At lower income levels this is typically lower than the 25% company rate for base rate entities. Eligible sole traders with aggregated turnover under $10 million can also immediately deduct the cost of eligible business assets under $20,000 each in the 2025-26 financial year under the instant asset write-off, confirmed under the Treasury Laws Amendment Act 2025. Assets must be first used or installed ready for use between 1 July 2025 and 30 June 2026. Consult ato.gov.au and a registered tax agent to confirm current rates and eligibility before making decisions.
5. Low compliance overhead. Sole traders are not required to hold annual general meetings, lodge company returns, or maintain a registered company with ASIC. GST registration is only required when annual turnover reaches $75,000.
6. Flexibility. A sole trader can operate across multiple business activities under a single ABN, register multiple trading names, and change the nature of the business without restructuring.
7. Financial privacy. Sole traders are not required to publicly disclose financial records. Unlike companies, which must lodge annual returns with ASIC, a sole trader's income and financial details remain private.

Cons of Being a Sole Trader in Australia

1. Unlimited personal liability. This is the most significant risk of the sole trader structure. There is no legal separation between your personal assets and your business. If the business is sued or cannot pay a debt, personal savings, property, and other assets are at risk.
2. No workers compensation for yourself. Workers compensation insurance covers employees, not sole traders. If an injury prevents a sole trader from working, there is no employer-funded income replacement. Personal accident insurance addresses this gap but it is not automatic.
3. Harder to access funding. Banks and investors often view sole traders as higher credit risks than incorporated businesses. Access to business loans, lines of credit, and equity investment is more limited without a company structure.
4. Difficult to scale. Growth beyond a certain point becomes operationally difficult as a sole trader. Taking on employees, winning larger contracts, or bringing in a business partner all become easier under a company or partnership structure.
5. Limited professional perception. Some corporate clients, government agencies, and larger commercial partners have policies requiring engagement with a Pty Ltd rather than a sole trader. This can limit the type of work accessible to sole traders in some sectors.
6. No superannuation guarantee from an employer. Sole traders are responsible for their own superannuation contributions. There is no employer paying the 11.5% super guarantee on their behalf.

Sole Trader Examples in Australia

Any individual running a business independently can be a sole trader. The structure is used across almost every industry. Common examples include:

• Trades and construction: Plumbers, electricians, carpenters, painters, tilers, and general handymen operating independently under their own trading names.
• Freelancers and creatives: Graphic designers, copywriters, photographers, videographers, and social media managers operating on a project or retainer basis.
• Consultants and coaches; Business consultants, management consultants, HR advisers, marketing consultants, and life coaches working directly with clients.
• Health and wellness professionals: Personal trainers, nutritionists, physiotherapists in private practice, occupational therapists, and massage therapists.
• IT and technology contractors: Software developers, web designers, IT support specialists, and cybersecurity consultants working independently or through platforms.
• Cleaning and domestic services: Domestic cleaners, commercial cleaners, window cleaners, and home maintenance providers operating independently.
• Education and tutoring. Private tutors, language teachers, music instructors, and education consultants.
• Food and hospitality: Market stallholders, food truck operators, private chefs, and caterers operating independently.

The sole trader structure suits these roles because the work is primarily skill or service-based, the liability is manageable at an individual level, and the overhead of a company structure adds cost without proportional benefit at the early stage.

When to Consider Moving From Sole Trader to Company

The sole trader structure works well at the start. The following situations are common triggers for reconsidering:

1. Revenue growing consistently above $100,000 per year. At higher income levels, the company tax rate (25% for base rate entities) may be more favourable than the personal marginal tax rate. A registered tax agent can advise on the crossover point for your specific situation.
2. Taking on employees. Once a business has employees, the administrative and legal separation provided by a company structure becomes meaningful.
3. Taking on high-liability work. Construction, health services, products with physical risk, and work involving significant client assets all carry liability exposure that makes unlimited personal liability a more serious concern.
4. Clients requiring a Pty Ltd. Government contracts, corporate service agreements, and some commercial leases specify engagement with a company rather than an individual.
5. Bringing in a business partner. A partnership or company structure provides a formal framework for shared ownership, profit distribution, and decision-making that sole trading cannot.
6. Seeking external investment. Investors require equity. Equity requires a company structure.

For a full comparison of the two structures, see sole trader vs company: pros and cons.

What Insurance Does a Sole Trader Need?

The sole trader structure removes several of the safety nets that employees take for granted. Insurance fills those gaps. The main types relevant to most sole traders are:

• Public and products liability insurance. If a client, third party, or member of the public is injured or has property damaged because of the business activities, public liability insurance may help protect against those claims, subject to policy terms. Most commercial clients, property managers, and councils require a Certificate of Currency before engaging a sole trader.
• Professional indemnity insurance. For sole traders providing advice, specialist services, or professional expertise for a fee, professional indemnity insurance may include cover for claims that the work caused a client financial loss. It may also include cover for legal defence costs, subject to policy terms.
• Tools of trade insurance. Sole traders who work with tools, equipment, or specialist items carry personal exposure if those items are stolen or damaged. Tools of trade insurance may include cover for theft of and damage to tools and equipment, subject to policy terms.
• Personal accident and sickness insurance. Workers compensation does not cover sole traders for their own injuries. Personal accident insurance may include cover for income lost during a recovery period, subject to policy terms.

upcover arranges public and products liability insurance, professional indemnity insurance, tools of trade insurance, and personal accident insurance for sole traders across Australia with instant Certificate of Currency on policy confirmation.

For a full guide to sole trader insurance, see the sole trader business insurance guide.

About upcover

upcover is a digital-first insurance broker helping Australian sole traders and small businesses arrange the right insurance instantly online. upcover arranges public and products liability insurance, professional indemnity insurance, tools of trade insurance, and personal accident insurance for sole traders across 4,000+ occupations in Australia.

• 70,000+ businesses covered.
• 4.9/5 customer rating.
• Instant Certificate of Currency on policy confirmation.
• 80+ insurance partners.

upcover is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078.

Frequently Asked Questions

What are the advantages and disadvatanges of being a sole trader in Australia?

The main pros are simple setup, full control over decisions, keeping all profits, a straightforward tax structure, and low compliance overhead. The main cons are unlimited personal liability for business debts and legal claims, no employer-funded workers compensation for your own injuries, limited access to funding, and difficulty scaling beyond a certain point.

What are examples of sole traders in Australia?

Common sole trader examples include tradespeople (plumbers, electricians, painters, carpenters), freelancers (designers, copywriters, photographers), consultants (marketing, HR, management), health and wellness professionals (personal trainers, physiotherapists, nutritionists), cleaners, IT contractors, tutors, and food and hospitality operators. Any individual running a service or skills-based business independently can operate as a sole trader.

What is the biggest disadvantage of being a sole trader?

The biggest disadvantage is unlimited personal liability. As a sole trader, there is no legal separation between personal and business assets. If the business faces a lawsuit or cannot pay a debt, personal savings, property, and other assets can be at risk. Public liability insurance and professional indemnity insurance address some of this exposure, subject to policy terms.

Do sole traders pay more tax than companies in Australia?

Sole traders pay tax at their personal marginal income tax rate. Companies pay a flat 25% on taxable income (for base rate entities). At lower income levels, the personal marginal rate is generally lower. At higher income levels it can exceed the company rate. A registered tax agent can advise on the most tax-effective structure for a specific income level.

Do sole traders need insurance in Australia?

Insurance is not legally required for sole traders in the same way it is for employers under workers compensation laws. However, public liability insurance is a practical requirement for most client-facing work; most commercial clients, property managers, and councils require a current Certificate of Currency before engaging a contractor. Without insurance, sole traders carry all financial exposure personally for any claim arising from their work.

When should a sole trader become a company?

Common triggers for moving from sole trader to company include consistent revenue above $100,000 per year (where company tax rates may become advantageous), taking on employees, taking on high-liability work, clients requiring engagement with a Pty Ltd, bringing in a business partner, or seeking external investment. Speak with a registered accountant or business adviser before restructuring.

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_{The information in this article is general in nature and provided for informational purposes only. It has been prepared without taking into account your individual needs, objectives or financial situation. It should not be relied upon as personal advice. Tax and business structure information is general only. Tax rates, thresholds, and concession rules are subject to change. Always consult a registered tax agent or accountant for advice on business structure and tax obligations specific to your situation. The insurance information in this article is also general in nature. All insurance products arranged through upcover are subject to the terms, conditions, limits and exclusions contained in the relevant policy wording and Product Disclosure Statement. Always read the relevant PDS before purchasing. upcover Pty Ltd ABN 17 628 197 437 is a Corporate Authorised Representative (CAR 1299211) of Experience Insurance Services Pty Ltd ABN 41 657 596 506, AFSL 539078. upcover arranges insurance products with selected insurers and underwriters and does not compare all general insurers or insurance products available in the market.}