What is a Sole Trader?

  • What is a Sole Trader?

What is a Sole Trader?


A sole trader is an individual who owns and operates their own business. It is the most straightforward and least expensive corporate form.

If you run your firm as a sole trader, you are the only owner, and you have complete control over and management of the company. You are legally liable for every part of your company’s operations. It is not possible to share debts or losses with other individuals.

You can hire employees for your company, but you are not permitted to engage yourself. As a single trader, you are responsible for paying the superannuation contributions of your employees. You’re also in charge of your own superannuation, which you can direct to a retirement fund of your choosing to help you save for your golden years.

What are the features of a Sole Trader?

As a sole proprietor, you are responsible for the following:

  • When filing your income tax return, make sure to include your individual tax file number.
  • You should include all your income in your individual tax return and use the section for business items to reflect your business income and expenses (there is no separate business tax return for sole traders)
  • Apply for an ABN and make use of your ABN in all of your business transactions.
  • Fill out a Goods and Services Tax registration form (GST). Pay tax at the same income tax rates as individual taxpayers if your annual GST turnover is $75,000 or more. You may be eligible for the slight business tax offset set aside money to pay your federal taxes at the end of the financial year. Typically, you will do this by reimbursing quarterly Pay As You Go (PAYG) deposits and claiming a deduction for any personal donations.
  • As a sole entrepreneur, you are unable to claim tax deductions for money that has been ‘drawn’ from your business. Even if you consider the amounts received from the be waged wages, they are not considered wages for tax reasons.

Personal Service Income (PSI)

A person’s personal services income (PSI) is defined as money that is mostly a reward for the individual’s own efforts or abilities. This is important because your PSI is treated differently to Sole Trader income.

To promote the legitimacy and impartiality of the tax system, there are unique tax laws that apply to PSI. Their goal is to prohibit people from minimizing or postponing their income tax liability by diverting the revenue obtained from their personal services through corporations and partnerships, as well as the trusts.

Personal services income (PSI) is earned when you are compensated primarily for your own efforts, talents, or knowledge. You may have to approach deductions related to personal services income (PSI) differently than other types of income.


You have the option of choosing whether or not to pay yourself super. Even though you are not required to make commitments to a super fund for yourself, doing so is a wise decision. You might wish to think about putting money into a retirement account through a super fund.


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Get your Company, Trust, Partnership or Sole Trader Tax Return done with our up-front packages which include filing and providing effective advice to reduce your tax liabilities.
October 21st, 2021|