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Sole Trader

A Sole Trader tax return is the most simple and straightforward tax structure a business can do in Australia. The main problem that can arise within this tax structure occurs when your business grows too quickly. When you begin employing people etc. you are adding potential business risk, which can create disadvantages for you. In this scenario, you would then need to change tax structures.

Sole traders pay a marginal tax rate of between 0% and 45% depending on the income level. One advantage you have is there are no limitations on how you can use your business鈥檚 funds. For example, if you own a company and take money out of its accounts, you have to document it 鈥 a sole trader does not.

There is also no superannuation requirement. You just need to save on your own, in actuality making super obsolete. Other tax structures need to put 9% of their profits into superannuation, which can reduce your cash flow.

Being a Sole Trader is good as long as your business is small and your net profit is roughly below $80,000 per year, as this is a lower tax rate bracket. However, if you鈥檙e earning over $80,000, a company has a flat 30% tax rate, while sole traders have to pay up to 32.5% once this benchmark has been reached.

Being a Sole Trader is high risk because of the level of personal liability 鈥 have you ever heard of someone losing a house because their business was in the same name as their property, yet they didn't have public liability or private indemnity insurances?

However, on a whole being a Sole Trader has low running costs, a low flexible tax rate, and its administration is very easy to manage.