A huge number of people are switching to sole proprietorship or sole trading by quitting their traditional 9-to-5 corporate jobs. That’s because an increasing number of people are looking for flexible work schedules and autonomy. If you are considering this option, then you are signing up for a rewarding professional journey. You are likely to get a good opportunity to express the creative idea or heartfelt passion that you have through your business venture.
A sole trader is essentially a person who has an unincorporated venture and pays personal income tax on any profits that the business earns. It’s quite an easy type of business to set up because it’s not governed by stringent regulations. You can run the business under your own name because a distinct trade or business name is not always necessary in a sole proprietorship model.
However, a sole trading business involves some degree of risk and challenges. It’s not always necessary that things will flow smoothly. There may come about an event when a client/customer, vendor, or a member of the public initiates a lawsuit against your business. That can happen when they suffer a personal injury or damage owing to any negligence on your part while offering your product or service.
Honestly, that isn’t something you would expect. Nor is it pleasant, because it can not only ruin your business’s reputation but also cause you immense financial damage. This is when you need a public liability insurance policy to protect your business against such unexpected losses. Such a policy covers your legal defense costs and compensation claims of the plaintiff(s). There are a few factors to consider while buying such an insurance policy. To get some useful tips for buying public liability insurance, check this article.
Earning potential of a sole trader
By now, you may have a fair idea of how lucrative a sole trading business is. While there is no limit on the income you can earn as a sole trader in Australia, you should be aware of you tax obligations. Different sole traders in Australia earn differently. There’s no one-size-fits-all approach to pricing the products or services that Australian sole traders deal in. Some of them may follow a fixed pricing for their product offerings, while others may charge an hourly rate for their service offerings.
The best way to understand the earning potential of Australian sole traders is to look at their taxable incomes and finally their net income after tax deduction. For taxation purpose, your sole trading business should have a registers Australian Business Number (ABN), which lets you generate invoices to your clients/customers and also communicate with the government. Since your personal and business income is related, you will be responsible for your income tax as a sole trader. You can claim an exemption for all allowable business expenses, after which, you are required to club all personal and business incomes in your individual annual tax return.
Sole traders in Australia can be involved in a variety of businesses. Their income levels will certainly depend on their individual pricing strategy as well as the province in which they are operating. Below is a quick view of incomes that sole traders in the country make annually:
- Flooring Contractor: $100,428
- Air Conditioning: $106,666
- Fencing Contractor: $82,500
- Joiner: $89,500
- Shop-fitter: $78,750
- Roofing Contractor: $80,340
Refrigeration mechanics, earthmovers, concreters, riggers, stonemasons, and scaffolders are a few other examples of sole traders operating in Australia. However, their incomes are slightly lower than the aforementioned ones.
As per 2019 figures, the average taxable income for a sole trader in Australia is seen to $81,636, which is a 0.3 percent dip from the previous year’s figures. When this is compared to the national average income of $88,140 in Australia, there’s certainly an income gap evident. The figures for Australian sole traders are relatively close to the country’s national average income across most business types and professionals. However, the income gap between the two types of businesses has undoubtedly grown compared to the previous year.
No matter what, despite the income gap, you can reckon upon your sole trading business for providing you with tremendous earning potential. Besides, the satisfaction you get working for yourself and exploring an area you are skilled at and passionate about is reason enough for you to consider this business type in Australia.