A sole trader is the simplest and cheapest business structure you can choose as it has few legal and tax formalities.
If you operate your business as a sole trader, you trade on your own and control and manage the business. You are legally responsible for all aspects of the business and debts and losses cannot be shared with other individuals.
As a sole trader you are responsible for your own super arrangements and any staff you employ.
The key features of a sole trader business structure is that you:
- Use your individual Tax File Number (TFN) when lodging your income tax return;
- Apply for an ABN and use this number for all your business dealings;
- Register for Goods and Services Tax (GST) if you carry on an enterprise. You must be registered for GST if your annual GST turnover is $75,000 or more;
- Pay the tax at the same income tax rates for individual taxpayers;
- Pay quarterly Pay As You Go (PAYG) instalments towards the amount of tax you expect to pay at the end of the year; and
- Claim a deduction for any personal super contributions you make after notifying your fund.
As a sole trader you cannot:
- 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.
Personal services income (PSI)
If you are a contractor or consultant, you may have to treat deductions in relation to this income differently.
Sole Trader Business Checklist
You may find the following bullet points helpful whilst assembling the information.
- Details of ABN and GST registration
- Cashbook summary of revenue items and expenses if not using an accounting package (a soft copy is preferred (i.e. excel))
- Bank statements for the entire financial year and bank reconciliation statement if prepared
- Copies of each of Business Activity Statements sent to the Australian Taxation Office, if held
- A backup of the accounting file (i.e. MYOB or QuickBooks) if one was maintained
- Details of invoice of major purchases of plant or machinery, motor vehicles etc
- If motor vehicle is being claimed for business related travel we require: log book percentage if applicable or number of kilometres travelled
- Details of personal contributions or drawings from the sole trader business
Business Activity Statements (BAS)
The business activity statement (BAS) is a tax reporting requirement for businesses issued by us on either a monthly or quarterly basis. It’s used for reporting and paying goods and services tax (GST), pay as you go (PAYG) instalments, PAYG withholding tax and other tax obligations.
When you register for an Australian business number (ABN) and GST, we will automatically send you a BAS when it is time to lodge.
All businesses registered for GST are required to lodge a BAS by the due date.