It seems like everybody has a side hustle these days, and why wouldn’t they? Whether you’re working out of physical offices or operating entirely online, starting your own business has never been easier. However, there’s one area of registering a company that’s a source of confusion for many Aussies; is a sole trader the same as a sole proprietor? It’s a good question with an answer that’s both simple and not so simple. So, if you want to know more about sole proprietorship in Australia, don’t worry; I’ve prepared a quick breakdown of all the critical information you need. Keep reading to find out more! 

A Sole Trader Defined

So, is a sole trader the same as a sole proprietor? Yes. A sole trader, also known as a sole proprietor, is a term used to describe an unincorporated business structure run by an individual who owns and operates the entire company solo. Think of it like this; a sole trader is like a one-person show in the business world. They set up a small shop or service by themselves without creating a separate company for it. This person does everything: they're the boss, the worker, and the one responsible for everything that happens in their business. 

In Australia, it’s very common for freelancers and independent contractors to classify themselves as such when starting a business. Some examples of sole traders include tradespeople (plumbers, sparkies, chippies, etc), freelance writers, delivery drivers and tutors. 

The Upsides Of Being A Sole Trader

Who hasn’t dreamed of being their own boss? As a sole trader, you call the shots and have complete control over how they deliver their product or services as well as their branding. Want to sell mango-flavoured lemonade today? Go for it! There's no one else to argue with. Every call is yours.

Another advantage of being a sole trader is the simple and straightforward tax administration. Unlike a fully-fledged company or Pty Ltd designation with staff wages, super entitlements and expenses, the Australian Taxation Office (ATO) views sole traders as an independent entity. You operate under a single Tax File Number (TFN) and a single ABN, so you’re taxed just like every other individual, but can also take advantage of the same tax-free thresholds. So, if your taxable income (after deductions) is below the designated amount, you’ll need to lodge a tax return but won’t owe any money in taxes. Cha-Ching! 

Speaking of simplicity, another advantage of being a sole trader is how easy it is to register as one. Firstly, start-up costs are minimal; you’re not renting an office space or needing to fork out thousands to buy machinery or desktop computers for your staff. Plus, if you ever want to close shop or try something new, it's usually a cinch. No complicated exit strategy is needed.

The Downsides Of Being A Sole Trader

Uncle Ben was right when he told the young Peter Parker, “With great power, comes great responsibility”. Working as a sole trader offers great flexibility, freedom and control, but it also means you take on all of the risks associated with running a business. Since there’s no legal distinction between you as an individual and your business assets, you’re liable for all debts and losses. 

Similarly, as a sole trader, your ability to raise capital is limited. For example, let’s say you build up a nice customer base of people in your area who pay you to mow their lawns every week. Word of your good work spreads and there’s a spike in customer enquiries. But there are only so many hours in a day and the only way you’d be able to keep up with demand is to buy a ride-on lawn mower that allows you to work twice as fast. An established company could ask investors to help cover the cost of this new equipment, but as a sole trader, you’ll need to pay for that John Deere yourself. 

Speaking of being busy, operating as a sole trader means no paid leave entitlements. So if you want to take some time off over Christmas and will struggle without our supplementary income, make sure you factor this into your budget ahead of time. 

Registering As A Sole Trader in Australia

Now you’re clear on what a sole trader is, how do you register as one in Australia? It’s an easy two-step process:

Step One: Apply for an Australian Business Number (ABN)

Before you can officially operate as a sole trader, you'll need an ABN. This is a unique 11-digit number that identifies your business. Apply for free at the Australian Business Register (ABR) website.

Step Two: Register a Business Name

Unless you're trading under your own name, you'll need to register a business name. After checking that your desired name is available, you can register it through the Australian Securities and Investments Commission (ASIC) website. There is a fee associated with this, usually around $42.00AUD for 12 months or $98.00AUD for three years.

Once you've completed these steps, you're all set to operate as a sole trader in Australia. Remember to keep good records, as this will make things easier come tax time and ensure you're meeting all your obligations. Good luck!