Open a Sole Trader in Australia

There are many ways to set up a company in Australia. Generally speaking, there are 2 main types of structures: 1) entities with legal personality, 2) entities without a legal personality. One of the entities without a legal personality is the sole proprietorship in Australia, which defines a business that is set up by an individual who wants to open a business in his or her own name.

If you are a person who wants to open a sole trader in Australia, you will need to conduct similar registration steps as the ones applicable to other company structures. However, there are many differences regarding the incorporation, and our consultants in company formation in Australia can help you with in-depth information.

What are the main characteristics of a sole proprietorship in Australia?

One of the main characteristics is that it is very simple to open a sole trader in Australia. Not only is the registration less complicated compared to other business structures, but it is also simpler to operate. If you will register as a sole trader in Australia you will benefit from simpler reporting obligations, as the company needs to maintain basic, simple accounting documents.

Some of the steps for company formation in Australia are not mandatory for a sole trader. For instance, when starting a sole trader business in Australia, the investor can use his or her personal tax file number for completing various administrative obligations, instead of applying for a business tax number.

Another step that is not mandatory for those who will open a sole trader in Australia is that they are not required to set up a corporate bank account. Instead, they can simply use their own bank account for the company’s transactions. However, one can set up a separate bank account only for business purposes; our specialists in company formation in Australia can advise on the procedure.

Please mind that even though the process to open a sole trader in Australia is very simple, and the management of the business is also rather easy, the investor will still have certain obligations.

Although this business structure can be set up by only 1 person, it is allowed to hire employees, outside of the person who initiated the sole trader registration in Australia. If this applies, after the business owner will open a sole trader in Australia, he or she should initiate all the employment formalities applicable here.

Registration costs

The sole trader has to be registered with various Australian authorities, including the Australian Taxation Office (ATO). Upon the registration with these institutions, various processing fees can be imposed. One of the moments when businessmen can be charged with processing fees is when they register the trading name of the company.

The sole trader's registration costs are lower than a company's, as the registration of a business name costs $47 for 1 year or $108 for 3 years (for a company with a separate legal personality, the business name fee is the same, but the company registration fee of $636 is added).

What are the tax obligations of a sole proprietorship in Australia?

If you want to register as a sole trader in Australia you must know that some of the most important differences of this structure compared to other business entities are related to the taxation system.

The sole trader will be taxed following the personal income tax system, and not the corporate tax system. Persons interested in starting a sole trader business in Australia must know that, from a tax point of view, the following apply:

• income below $18,200 is exempted from taxation;
• there are other 4 tax rate thresholds, for the 4 different income tax brackets – $18,201 to $45,000, $45,001 to $135,000, $135,001 to $190,000, and income above $190,001;
• the company can be entitled to the small business entity tax concession if it has an aggregated turnover of less than $10 million;
• the obligation for GST sole trader registration in Australia will appear if the GST turnover is above $75,000;
• GST is currently charged at a rate of 10%.

Bookkeeping of a sole trader in Australia

A major difference between a sole trader and a corporate entity is given by the bookkeeping obligations these businesses have. While a legal entity such as the limited liability company must abide by complex accounting formalities, and it is legally required to submit a variety of documents with the local authorities, in the case of the sole trader, these requirements are very basic.

For instance, the sole trader can register his/her business income and corporate expenses on the individual income tax return, making the overall accounting procedures far simpler than in the case of a private company. However, there are certain reporting and bookkeeping obligations similar to the ones of the private company.

For instance, those who will opt for company incorporation in Australia for a sole trader will have to keep their financial documents for a period of 5 years, while for a private company, the same rule applies, but for 7 years.

Liability

As mentioned earlier in this article, the sole trader is a type of structure in which there isn’t any legal difference between the owner and the company. This will also be reflected in the manner in which the company assumes its liability obligations and these rules should be taken into account when setting up a company in Australia.

For instance, it must be noted that there isn’t any legal distinction from the assets of the company and the personal assets of the businessman and this implies that, if the company goes bankrupt or it has various debts, the personal assets of the company’s founder can be used as a way to cover these debts.

This is why this structure is recommended only when a businessman has a small company. If the company develops commercially, economically, it grows in the number of employees, etc., it is recommended to opt for a different structure that can better protect the assets of the investor.

We invite you to contact us if you need further information on how to open a sole trader in Australia. We also recommend you address us if you are interested in buying a shelf company in Australia.