Sole Trader


There is nothing to stop you commencing business in your own name, e.g. John J Smith.

The sole trader category is a suitable entity for small-scale business operations employing the personal talents of the proprietor.

The owner of the business is personally liable for the debts of the business and all of the owner’s personal assets can be utilised to pay business debts.



The operational life of the business is limited.  When the sole trader dies, the business organisation will come to an end automatically, unless otherwise provided for in a will.



The taxable income of the sole trader takes in the entire taxable income of the business.

A sole trader will pay tax on the business’ taxable income based on their marginal tax rate.  The current rates (2011/12 and subsequent income years) are:


Marginal income tax rates Income band
10.5% 0 – $14,000
17.5% $14,001 – $48,000
30% $48,001 – $70,000
33% $70,001 and higher



The sole trader normally owns the assets of the business in his/her own right.



The sole trader is personally responsible for any business debt or loss and any business creditor will therefore have the right to claim against the sole trader’s personal assets (such as the family home) to enforce a right of payment.



However, for a small enterprise, the advantages for a sole trader include:

  • Low cost of entry
  • Easy to set up
  • No significant legal costs
  • Only one tax return required
  • No registration of name required (if trading under your own name)



On the other hand, the disadvantages mean:

  • You are personally liable for all business debts
  • When you die, the business entity dies
  • You have limited ability to split income out to other family members