If you are working under an ABN in Australia, you are almost certainly operating as a sole trader. But you may have heard people talking about different business structures. Understanding the distinction is useful, even if the choice for most working holiday makers is straightforward.
What is a sole trader?
A sole trader is an individual who runs a business in their own name. There is no legal separation between you and the business. The income you earn is your personal income, reported on your individual tax return at the end of the financial year.
As a working holiday maker registering for an ABN to work as a subcontractor, you are a sole trader. You are personally responsible for the business, its debts, and its tax obligations.
What is a company?
A company is a separate legal entity. It has its own ABN and its own tax obligations, separate from the individuals who own it. A company pays company tax at a flat rate (currently 25% for small businesses), and the owners pay income tax on any salary or dividends they receive from it.
Companies involve significantly more administrative overhead — registration with ASIC, ongoing annual fees, separate financial accounts, and in most cases a dedicated accountant.
Why almost all working holiday makers are sole traders
For the scale of work most working holiday makers do, a sole trader structure is entirely appropriate. You are earning income for services you personally provide. There is no reason to introduce the complexity of a company structure.
A company makes sense when there are multiple owners, when there is a need to limit personal liability, or when income is large enough that tax savings outweigh the running costs. For a working holiday maker earning a few thousand to tens of thousands under an ABN, none of these apply.
Tax rates compared
As a sole trader on a working holiday visa, your ABN income is taxed at the working holiday maker rate of 15% on the first $45,000. A company pays 25%. For working holiday makers, the sole trader structure often results in a lower effective tax rate before any offsets are applied.
Personal liability
As a sole trader, your personal assets are at risk if the business incurs debts or causes harm. For most working holiday makers doing straightforward subcontracting work, this is not a meaningful risk.
The practical takeaway
Register for an ABN as an individual, operate as a sole trader, and lodge your income through your personal tax return at the end of the year. If your situation is unusual, speak to a tax agent before making any decisions.
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Questions about your business structure or ABN?
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