Going Solo - Sole Traders Business Advice

Sole Traders Business Advice

If you're a sole trader then you're the one calling all the shots in your business. 

You own and manage the business, and are legally responsible for all manners of the business. It's relatively easy and cheap to set up. But just like with any other business structure you need to understand it. To help you we’ve put together this page of sole traders business advice. 

Pros of Being a Sole Trader

The following are advantages of being a sole trader: 

  • Its simple to set up and operate.
  • You have complete control of your assets and business decisions.
  • You have fewer reporting requirements.
  • Any losses incurred by your business activities may be offset against other income, such as your wages or investment income (subject to certain conditions).
  • You can use your individual tax file number (TFN) to lodge tax returns.
  • You are not considered an ‘employee’ of your own business and therefore don’t pay payroll tax, superannuation or workers’ compensation. 
  • It's a  relatively easy to change business structure if your business grows or if you wish to cease business. 

Cons of Being a Sole Trader

The following are disadvantages of being a sole trader:

  • Unlimited liability which means all your personal assets are at risk if things go wrong.
  • There is little opportunity for tax planning - you can’t split business profits or losses with family members and friends. 
  • You are personally liable to pay tax on all income from the business. 

Other Factors to Consider 

The following are all important factors for you to consider as a sole trader operating in Australia. 

Tax Requirements for a Sole Trader

When it comes to your tax requirements as a sole trader please keep in mind the following:

  • You must use your individual tax file number when lodging your income tax return.
  • You must report all your income in your individual tax return, using the section for business items to show your business income and expenses.
  • You must have an ABN and use your ABN for all your business dealings.
  • You must register for Goods and Services Tax (GST) if your annual GST turnover is $75,000 or more.
  • You must pay tax at the same income tax rates as individual taxpayers (you may be eligible for the small business tax offset).
  • You must claim a deduction for any personal super contributions you make after notifying your fund.

Visit the ATO website for more information regarding tax obligations for sole traders.

Deductions for Money as a Sole Trader

Please keep in mind as a sole trader in Australia you can't claim deductions for money 'drawn' from the business. Amounts taken from the business are not wages for tax purposes, even if you think of them as wages.

Sole Trader Insurance

As a sole trader you are responsible for the liabilities of the business. Liability is unlimited and includes all your personal assets, including any assets jointly-owned with another person, such as a house or even caravan. 

You are also not covered by workers’ compensation if you injure yourself at work. This may result in a loss of income if you cannot work and you could still be required to pay any expenses for your business, such as loan repayments. Learn more about the various insurances available for your business here.

Business Name and Sole Traders

Did you know that as a sole trader you are not required to register your business if you use your name? But if you operate under any name other than your personal name, then you must register your business name with ASIC (Australian Securities and Investments Commision).

For more help with your sole trader business and tax return, be sure to contact the tax specialists at TaxSlayer who work with a wide range of business owners. 

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