Sole Trader: Advantages & Disadvantages

Understanding the advantages of being a sole trader

When launching a new business, one of the things you need to decide at the outset is the type of business structure that’s best for you. For some people this might mean setting up as a sole trader. But what does this actually involve?

Sole trading is the simplest business structure you can choose. It gives you full control over your business, and also comes with a range of advantages and disadvantages.

What are the advantages of being a sole trader?

There are many advantages to being a sole trader, and one of the biggest is that this structure gives you total control over all your business assets and decisions. The buck stops with you, so to speak – which gives you the flexibility and freedom to build your business exactly the way you want it.

But don’t be fooled by the name. Being a sole trader doesn’t mean you have to work alone. You’re still able to hire employees to help you run the business, although you’ll need to make sure you comply with all the relevant legal and tax elements of managing staff, including providing them with workers compensation and super contributions.

Regardless of whether you work alone or with staff, the simplicity of this business structure is also a major advantage because it means it is relatively cheap to set up, which is particularly helpful when you’re starting out. It’s also easy to change your legal structure down the track if the needs of your business change over time.

These processes are also simple to manage (especially when you have the help of a good tax specialist to help you, such as the ones at H&R Block) so it’s a lot less stressful doing business as a sole trader than it is with other business set ups.

Sole trading also comes with the benefit that any tax losses in your business can be offset against any other sources of income (subject to the non-commercial losses rules, which impose some restrictions on offsetting losses). This can be really useful when you’re in the early days of running your business and still have a ‘day job’ to help you pay the bills.

What are the positive tax implications of being a Sole Trader?

The great news is that paying tax is relatively easy and straightforward when you’re a sole trader. This is because sole traders are taxed at the same individual income tax rate as every other individual – meaning that, if you’re an Australian resident you can take advantage of the tax-free threshold. So if your taxable income, after deductions, is below the designated amount ($18,200 in the 2024 and the 2025 years) you still need to lodge a tax return but you will not owe any money in taxes.

What are the disadvantages of being a sole trader?

Unfortunately there are a few cons to being a sole trader that you also need to know about.

As a sole trader you don’t have any directors or partners in the business and you’re not able to take on any shareholders. So you need to rely purely on the funds you can raise personally to float the business. This can seriously limit the growth potential of the business, both when starting out and in the future, and it can make it very difficult to change ownership or ultimately sell the business.

What are the negative tax implications of being a Sole Trader?

While paying taxes as a sole trader is relatively straightforward, there are disadvantages. For example, you’ll miss out on paying the flat tax rates available to companies, which can make a big difference if your business is earning enough to put you in one of the higher tax brackets.

What next?

Whether you’re ready to set up a business as a sole trader or still thinking through your options, set yourself up for success and contact your local H&R Block office. Our experienced team will help you work out the best set up for you and your business, and we pride ourselves on making the process easy and stress free.

As an added bonus, if you need to submit a Business Activity Statement (BAS) for your business because you’re earning over $75,000 – we’ll help you do your first BAS for free!* (T&Cs apply) And the cherry on the top? Lodge all four BAS statements with H&R Block in your first year and we’ll give you a 20% discount** (T&Cs apply) in addition to our expert help. 


*FIRST BAS WITH H&R BLOCK FREE TERMS & CONDITIONS
First BAS with H&R Block FREE* offer is available to all clients who wish to process their first BAS return with H&R Block. First BAS FREE offer is valid for a single transaction only. Applies to small business BAS serviced by our retail office level team only. Not to be used in conjunction with any other offer. Offer does not apply to existing H&R Block BAS clients. Available at participating offices only.

**BAS CLIENT BONUS 20% OFF TAX RETURN TERMS & CONDITIONS
Offer applies to existing H&R Block BAS clients only. To be eligible for the bonus offer of 20% off your tax return, clients must complete all 4 BAS statements within that financial year. 20% off your tax return is valid for a single transaction only. Not to be used in conjunction with any other offer. Available at participating offices only. 
 

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