Should You Become a Sole Trader?

What is a sole trader?

A sole trader is the most straightforward business structure where you're solely responsible for all aspects of the business, including debts, losses, and day-to-day decisions. This structure is relatively easy and inexpensive to set up.

Advantages of being a sole trader include:

• Low start-up costs
• Full control as you're the boss
• You retain all the profits
• Simple establishment and operation
• Flexibility to change the legal structure later if needed

On the downside:

• Unlimited liability for debts as your business and personal assets are not separate
• Limited capacity to raise capital
• The onus of day-to-day business decisions rests solely on you
• Difficulty in retaining high-calibre employees
• Challenges in taking holidays
• Being taxed as a single person which may limit the life of the business

With Thriday, the financial management becomes a breeze. The automated bookkeeping, accounting, and tax calculations can alleviate the financial administrative burdens, allowing you to focus on growing your business.

Key elements of a sole trader

A sole trader business structure:

• Is simple to set up and operate
• Gives you full control of your assets and business decisions
• Has fewer reporting requirements and is generally a low-cost structure
• Allows use of your individual tax file number (TFN) to lodge tax returns
• Doesn’t mandate a separate business bank account, but it’s recommended
• Requires keeping financial records for at least 5 years
• Has unlimited liability, putting all your personal assets at risk
• Doesn't allow for splitting business profits or losses with family members
• Makes you personally liable to pay tax on all the income derived

Can sole traders hire people?

Yes, sole traders can employ individuals to help run the business, however, compliance with workers' compensation insurance and superannuation contributions is mandatory.

Do sole traders have to pay superannuation?

Sole traders have the choice of paying super to themselves but are not obliged to do so. It's advisable to consider super as a means of saving for retirement.

What are the tax obligations of a sole trader?

As a sole trader, you:

• Use your individual TFN when lodging tax returns
• Report all income in your individual tax return
• Are entitled to an Australian business number (ABN) and use it for all business activities
• Must register for goods and services tax (GST) if certain conditions are met
• May be required to lodge business activity statements
• Pay tax on all your income based on your individual tax rate
• May use or be required to make PAYG instalments to prepay income tax
• Can claim a deduction for personal super contributions after notifying your fund
• Can hire workers and are required to meet all employer and super obligations for them

Thriday’s automated tax calculation, BAS and tax lodgment features can help ease the tax compliance process, making it less daunting for sole traders.

Sole trader ABN entitlement

Individuals running an enterprise as a sole trader are entitled to an ABN. This is the simplest and cheapest business structure, where you are the only owner and are legally responsible for all aspects of the business, including debts.

With Thriday’s all-in-one financial management platform, transitioning to, or operating as a sole trader could become significantly more manageable and efficient.

Sources:
https://www.ato.gov.au/business/starting-your-own-business/business-structures---key-tax-obligations/#SoleTrader

https://business.gov.au/planning/business-structures-and-types/business-structures/sole-trader

https://www.abr.gov.au/business-super-funds-charities/applying-abn/abn-entitlement/sole-trader

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