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 done with the relevant authority in every Australian state in which you plan to do business.
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 business losses.
- 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.
- Minimal reporting requirements.
- Income tax rate for the business is the same as your personal tax rate which means that any business losses you incur can be offset against any other income you might have such as a rental property.
- 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.
- 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 or income-splitting arrangements.
Back to top
What's next...
Back to top