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Going it alone

November 19, 2020 by Harrison Kopp

Going it alone

If you’ve been following the recent gig economy, you’ll know a great deal about ABNs, gigging, and some of the companies that are involved in it. If you’re just tuning into this one, keep an eye out as we’ve got some relevant articles coming up.

Now back to business (pun fully intended)… a sole trader is one of the business types recognised by the Australian Government. It’s where an individual owns and operates a business under their own name. While a sole trader is more often than not a single operator, they can employ other people.

Regardless, sole traders are often very small, and have some unique features and benefits.

Characteristics of sole traders

  • A small number of people involved
  • No distinction between the individual and the business
  • Uses the individual’s tax file number for lodging tax returns
  • Usually operates under the individual’s name, but can adopt a business name

The benefits of being a sole trader

  • It is incredibly simple and cheap to start up, especially compared to other corporation types
  • As the sole owner, you have complete control over the business, its assets and the business decisions
  • It’s easy to change the business structure if the business grows or you wish to end it
  • With the gig economy ramping up and more and more work becoming freelance, temp or contract, being a sole trader with a specific skill set is becoming a very viable career option

Things to be aware of

  • Unlimited liability – a real biggie. Because there is no distinction between the individual and the business, you are responsible for all the financial risk, and all the assets you own, including joint-ownership, can be taken if you declare bankruptcy
  • As the sole owner, you cannot share your debts or losses with anyone else
  • No workers’ compensation. As you are not considered an employee of the business, you are not covered by workers compensation
  • You will need an Australian Business Number
  • You are taxed at the individual income tax rate, with its progressively increasing rates
  • You are not legally required to make superannuation contributions, though you can do so

Don’t let all that scare you. In the case of gigging, you won’t have to worry about liability as much because you are probably not investing heavily into a business enterprise. In essence, you’re selling your services rather than a product, and thus require very little capital or employees.

Of course, this article is by no means a comprehensive replacement for legal advice. You should always ensure you are up-to-date on all the information regarding these matters. You can find this information at the Australian Tax OfficeAustralian Securities and Investments Commission and Australian Business Register.

If setting up as a sole trader, or getting involved in the gig economy, is something that appeals to you, check out our upcoming Graduate Gateway - especially the Monday sessions! 

 

 

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