Sole trader vs company in Australia: what is the difference for working holiday makers?

What is a sole trader?

A sole trader is an individual running a business in their own name:

• No legal separation between you and the business
• Business income is your personal income
• Reported on your individual tax return at year-end
• You are personally liable for business debts
• Simple to register and operate

Working holiday makers registering an ABN to do subcontracting work are sole traders. You quote your ABN on invoices, the client pays you directly, and the income appears on your personal tax return.

What is a company?

A company (Pty Ltd) is a separate legal entity:

• Has its own ABN
• Has its own tax obligations
• Pays company tax at a flat rate (25% for small companies)
• Owners receive salary or dividends, which they pay personal tax on
• Limited liability protects personal assets

Companies require:

• Registration with ASIC (Australian Securities and Investments Commission)
• Ongoing annual ASIC fees
• Separate financial accounts
• More complex tax returns
• Usually a dedicated accountant
• Director responsibilities and reporting

The administrative overhead is significant.

Why are almost all working holiday makers sole traders?

For the scale of work most working holiday makers do, sole trader is the right structure:

• You are earning income for services you personally provide
• No employees or complex business operations
• Income is typically under $50,000 per year
• No need for asset protection beyond standard insurance
• No tax benefit from a company structure at this income level

A company makes sense when:

• Multiple owners share the business
• Personal liability is a major concern (some specialist trades)
• Income is high enough that tax savings outweigh running costs (typically $200,000+)
• The business has employees or significant assets

None of these typically apply to working holiday makers.

How do the tax rates compare?

For a working holiday maker:

• Sole trader: 15% on the first $45,000 of business income (working holiday maker rate)
• Company: 25% on all business income (flat company tax rate)

At working holiday maker income levels, the sole trader rate is significantly lower. The 15% rate applies until $45,000, then 30% on $45,000-$135,000.

For a working holiday maker earning $30,000 under an ABN:

• As sole trader: $4,500 tax (15%)
• As company: $7,500 tax (25%)

Plus the company would have ongoing ASIC fees (~$300/year) and accounting costs. Sole trader is clearly better.

What about personal liability?

As a sole trader, your personal assets are at risk if the business incurs debts or causes harm:

• For typical working holiday maker work (cleaning, hospitality, basic trades), this is a minimal risk
• Insurance can cover most liability risks at low cost
• The exposure is usually less than the cost of company maintenance

For working holiday makers doing risky specialist work (electrical, plumbing requiring licensing), a company might offer some protection. But these specialist trades usually require qualifications most working holiday makers do not have.

How do you register as a sole trader?

The process is simple:

1. Get in touch with our team
2. Send us your details
3. We register your ABN as a sole trader (usually within 24 hours)
4. You start invoicing under your ABN

No ASIC registration is needed for sole traders. The ABN is all you need to operate.

What about a partnership or trust?

Other business structures exist but are rarely relevant for working holiday makers:

• Partnership: two or more sole traders sharing business income; complex tax treatment
• Trust: a structure that holds assets/income on behalf of beneficiaries; mainly for asset protection
• Company: as described above

For working holiday makers, sole trader is the simple, correct answer in almost all cases. If your situation is unusual (significant capital, multiple business partners), get in touch with our team and we will discuss options.