A sole trader is a person that wholly owns and operates a business. This structure is cheap to operate and requires the least amount of paperwork whilst providing you with the flexibility to easily change the legal structure when your business evolves. As a Sole Trader you retain complete control over your business because Sole Traders are legally perceived as the same entity as their owners. This means that you will be taxed through your personal Tax File Number, at your personal tax rate, and that your assets are the business’ assets. So, whilst you are in full control, you also assume full responsibility and unlimited liability for any loans or other risky decisions that are made.
This structure is perfect for individuals wanting to start a business to provide services or goods that do not require a big management team or overhead costs; think artists that want to begin accepting commissions for their work or a plumber that wants to begin offering their services as a one-person team. Key features: Use your individual tax file number when lodging your income tax return Report all your income in your individual tax return, using the section for business items to show your business income and expenses (there is no separate business tax return for sole traders) Apply for an ABN and use your ABN for all your business dealings Register for Goods and Services Tax (GST) if your annual GST turnover is $75,000 or more Pay tax at the same income tax rates as individual taxpayers, and you may be eligible for the small business tax offset Put aside money to pay your income tax at the end of the financial year or, more usually, you will do this by paying quarterly Pay As You Go (PAYG) instalments Claim a deduction for any personal super contributions you make after notifying your fund. As a sole trader, 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.