A sole trader conducts business as an individual and without the benefit of a separate legal entity that is unconnected with the individual. Accordingly, all assets and liabilities of the business are essentially the assets and liabilities of the individual. The nature of the business of the sole trader, having no separate legal identity, exposes the individual to unlimited liability for the debts and liabilities of the business, meaning that in circumstances where the business fails, the sole trader will become directly accountable to creditors and the personal assets of the sole trader (which may not necessarily be involved with the business) may also become the subject of claims. From a tax perspective, sole traders are unable to reduce tax through income splitting and in their ability to claim business deductions (which must be substantiated as fringe benefits). On the other hand, the sole trader structure is simplistic in nature. As well as CGT advantages, the profits raised by the business forms part of the assessable income of the individual which can mean tax is paid at a lower marginal rate. Accordingly, in many circumstances, operating a business under a sole trader structure is not only suitable but the most appropriate.
Our Sydney Business Lawyers and Sydney Tax Lawyers can properly advise you if this structure is suitable in preference to a more complicated structure.
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