Understanding the role of a sole trader
Starting a business as a sole trader is one of the easiest and inexpensive business structures to maintain. There are few tax and legal formalities to abide by and the ability to control and manage your business resides solely on your own capabilities.
Do I need an ABN as a sole trader?
When it comes to paying tax, a sole trader who does contract work for other businesses is able to use their personal TFN. Applying for an ABN is not compulsory in order to do contract work particularly if the businesses you are contracting for classify you as an employee.
For sole traders who sell products or provide services for a host of individuals or businesses, an ABN may be required to continue operation.
The responsibilities of a sole trader
You have sole control over managing your business and although you may hire employees to work under you, you are fully liable for the business’s income, debts and losses. As a sole trader, your business is grown by you and will either fail or succeed at your own expense.
Sole trader tax
Just like individual income, as a sole trader you are taxed under the current government set tax thresholds. As a sole trader you are exclusively responsible for any tax the business must pay. Once you have claimed a deduction for allowable expenses made, all business income and any other income will be reported on your individual tax return.
As of July 2012 under the governments Household Assistance Package, the tax-free threshold sits at $18,200. If you earn less than $18,200 in a single financial year, you do not need to pay income tax for your business. You will only need to pay income tax on earnings that exceed $18,200.
Goods and services tax (GST) for sole traders
If you carry on an enterprise you can register for goods and services tax. It is compulsory to register for GST if your annual GST turnover is $75,000 or more. Application for GST registration is accessible via the ABN application form.
Do you have any further questions?
Here at BaseHQ we have over 50 years of experience working with both businesses and individuals. For further information or if you have any questions that you feel are unanswered with regards to sole traders, our teams are expertly capable of providing advice and guidance.
