Sole Trader Business Structure

Business ManThe best place to start off (usually).

A sole trader business structure is essentially one individual who owns and operates the business. They’re the one who is responsible for all aspects of it.

The sole owner can use their individual Tax File Number to lodge their tax returns Because of this, you are not considered an employee of the business (which means no payroll tax = win).

(However, you also don’t have to pay superannuation, therefore we suggest getting on top of this to make sure you’re securing your future.)

This structure is one of the easiest to set up and has relatively low maintenance. It can easily be changed as your business grows, where this structure is no longer the most effective.

The downside of this structure is that because you and the business are one, you are liable for the businesses losses and assets. If this business gets sued, then that means you personally do.

It’s also not the most tax effective structure, if your revenue and profit are looking pretty good, because you can’t split your income. There’s not a lot of room to play with when it comes to creative tax planning strategies as it all falls under one entity, you.

A sole trader structure is the best place to start at, but if success keeps coming your way, (fingers crossed), then it’s time to get the help of an accountant. You can have a chat to see what is associated with moving to a different structure, and what benefits the benefits of it are.

Let ‘s talk about tax.

How is a Sole Trader structure taxed?

Again, because you and the business are one, it will be taxed as an individual (aka. you). Because of this  you’re going to pay the income tax at the personal rates. Again, depending on the revenue and profit your business is making, you may be looking at a high tax bill at the end of the year. The best way avoid this? By paying PAYG (Pay As You Go) instalments, so you’ll be putting money away towards this quarterly (and then hopefully getting a lot of it back through some great deduction hunting).

So is this the right structure for you?
  1. Are you the only one running the business?
  2. Has the business just been started?
  3. Is the business revenue not yet consistent?

Well, if you answered yes to these questions, then there’s a good chance you’ve found your fit in the Sole Trader structure for your business.

If you’re still unsure, The Australian Governments, Business Registration Service have a very helpful tool to help you decide. Follow the link here.

Or give us a call and we’ll have a chat with you to make sure you have the right structure for your business!