Sole Trader

A sole trader is the simplest form of business structure. It is also relatively easy and inexpensive to start and maintain.

Many sole traders choose to trade under their own name - for example, Karen Smith - while others opt to register a business name which must be done with Australian Securities and Investments Commission (ASIC).

As a sole trader you retain complete control of your business

There is no division between business assets or personal assets, which includes your share of any assets jointly owned with another person (such as your house or car). Your liability is unlimited which means that personal assets can be used to pay business debts.

Sole traders pay income tax at personal tax rates

Sole traders are taxed as individuals and pay income tax at personal tax rates. This means your business income is declared on your personal tax return along with any other assessable income (such as your salary or wages, interest, dividends).

  • Learn more about tax for sole traders at the ATO website

The advantages and disadvantages of a sole trader

Advantages

  • Simple set up and operation.
  • You retain complete control of your assets and business decisions.
  • Fewer reporting requirements.
  • Any losses incurred by your business activities, may be offset against other income earned (such as your investment income or wages). Subject to certain conditions.
  • You are not considered an employee of your own business and are free of any obligation to pay payroll tax, superannuation contributions or workers' compensation on income your draw from the business.
  • Relatively easy to change your legal structure if the business grows, or if you wish to wind things up.

Disadvantages

  • Unlimited liability which means all your personal assets are at risk if things go wrong.
  • Little opportunity for tax planning - you can't split business profits or losses made with family members and you are personally liable to pay tax on all the income derived.

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