Sole Trader Structure

A sole trader is the simplest business structure and consists of an individual trading on their own. That person controls and manages the business.

Advantages

Disadvantages

Other Tax Issues

Advantages

1. Sole trader offers the advantages of simplicity when established as well as the ease of control. The reporting requirements are minimal and it is only a simple process of dismantling.

2. The income of the business is treated as the person's individual income and they are solely responsible for any tax payable by the business. This offers the tax advantage that tax losses may be offset against other income of the taxpayer.

3. For capital gains tax (CGT) purposes, the sole trader is eligible to claim the 50% CGT discount for individuals.

4. Sole traders are not employees of their business. This means that there is no need to take the sole trader's drawings into account in respect of "compulsory employee" superannuation contributions. A sole trader also does not have payroll tax and workers compensation liabilities in respect of his or her drawings.

^ Back to top

Disadvantages

1. The most significant disadvantage from a taxation perspective is that there is lack of ability to split income.

2. A sole trader's ability to claim tax deduction for contributions to a superannuation fund is limited.

3. The sole trader is required to prove business deductions for "fringe benefits".

4. The sole trader has no liability to vary income between family members from year to year. This means that there is no flexibility in tax planning.

5. The sole trader has unlimited liability, this means that all the assets of the sole trader (including personal assets) are at risk.

6. The business ends when the sole trader ceases working on retirement or death.

^ Back to top

Other Tax Issues

ABN: A sole trader who is carrying on an enterprise in Australia may apply for an ABN for their business and use this number for all their business dealings.

 GST: A sole trader who is carrying on an enterprise may apply for GST registration. This can be applied for on the ABN application form. A sole trader is required to be registered for GST if their annual turnover is $75,000 or more ($50,000 or more prior to 1 July 2007).

Drawings: A sole trader cannot claim a deduction for money they 'draw' from their business. Amounts taken from a sole trader business, and regarded by some as their 'wages', are not wages for tax purposes and are not tax deductible.

Superannuation: Sole traders are responsible for their own superannuation arrangements. They need to pay superannuation contributions for any employees they employ to help run the business.

^ Back to top

if you would like more information on how to set your business up as a sole trader, please complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry.  or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.