When you’re a sole trader, there’s no legal separation between you and your business. That means every dollar your business brings in is technically already yours – you’re not “paying yourself” so much as accessing money that belongs to you. Woo!
Sounds great, right? Well, mostly! While that money sits in your account under your name, you can’t necessarily spend it all. You may need some of the funds to cover bits and bobs for your business, like overheads and supplies.
Then, there’s your personal income tax to pay to the ATO, along with the Medicare levy and potentially student loan repayments. So even though the cash is yours, a chunk of it may need to be earmarked for tax purposes.
Sole traders vs companies: what’s the difference?
If you’re running an incorporated company (known as a Pty Ltd), things work differently. The company is a separate legal entity, which means its profits belong to the business itself, not directly to you.
Getting money out of a company requires one of several formal methods. You might pay yourself a salary, which means becoming your own employee and dealing with PAYG tax and superannuation contributions. Or you could take dividends from the company’s after-tax profits, or set up a director’s loan. Each option has different tax implications and compliance requirements.
As a sole trader, you skip all that complexity. You simply access your funds whenever you need them – no payroll systems, no formal structures, no headaches!
Understanding your income as a sole trader
Like we said earlier, the money you earn through your sole trader business is personal income. You won’t receive wages in the traditional sense – every dollar you make is income you’ll eventually pay tax on.
Here’s the catch: unlike employees who have tax automatically deducted from their pay, you’re responsible for setting aside your own. That means you’ll need to factor tax into how you manage your income. Not every dollar you earn will be yours to keep!
At the end of the financial year, you’ll need to lodge a personal tax return that includes everything you’ve earned from all sources. You may also opt into Pay as You Go (PAYG) instalments voluntarily, which allows you to prepay tax on your sole trader income throughout the year. By doing so, you can dodge a hefty tax bill when you lodge your tax return at the end of the financial year. (Fun times, we know!)
💡 This is actually where Hnry comes in – we automatically calculate, deduct, and pay your tax bits and bobs for you, every time you get paid. Plus, we lodge your tax return when it’s due. No unexpected surprises! Learn more.
Managing your cash flow
Easy access to your money is definitely convenient! But like we were just talking about, it might not be yours to spend freely. The best way to make sure you’ve always got enough on hand to pay your bills is to spend a little time managing your future cash flow.
Cash flow is the movement of money through your business – what comes in from sales, grants, or tax rebates, and what goes out for supplies, equipment, or loan repayments. It shows whether you’ve got money in the bank when you actually need it, not just whether you’re profitable on paper.
The goal is to stay cash flow positive – meaning you’ve got enough cash on hand to cover your financial obligations as they arise. A healthy bank balance doesn’t always mean you’re free to treat yourself to that gold-plated coffee machine (if only)!
To keep your cash flow under control, you’ll need to focus on spending your actual profits, not your net income. Setting up separate bank accounts can help you track what’s coming in and what needs to go towards business costs.
📖 For more info on managing your cash flow for your sole trader income, check out our complete guide to cash flow management. Easy!
Manage your sole trader income with Hnry
Hi! We’re Hnry!
Our award-winning app – created specifically for sole traders like you – takes care of your taxes, so whatever lands in your account is yours to spend.
For just 1% + GST of your sole trader income, capped at $1,500 +GST a year, we calculate, deduct, and pay all your taxes, levies, and whatnot for you, including:
- Income tax
- GST (if applicable)
- Medicare levy
- Student loan repayments
- Superannuation contributions (optional)
… meaning you won’t have to think about any of that. Ever.
Being a sole trader is hard enough. Hnry has your back. Sign up today, and stay on top of your sole trader income by never ending up with a hefty tax bill.
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