Melanie Hearse - 6 Jul, 2020

How to protect your assets as a sole trader

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Sole traders can be especially vulnerable to shifts in the wider financial environment. Here’s how to protect your assets whatever may come.

If there is one thing the pandemic has taught sole traders, it’s that how you handle your finances when it’s business as usual, dictates how much cushion there is through the hard times. It is true in the most basic sense, in that the money you’ve saved for a rainy day can be put into play when it is needed, but it is also true at a more complex financial level. Even if you got caught short this time around, there is still plenty to be learned, and loads you can do to get back on track and protect your assets.

Paying yourself superannuation

It can be tough to put away superannuation as a sole trader; you may feel you’re deciding between paying your bills now versus saving for some vague time in the future. It may also seem savvier to reinvest in your business to build up more business (and therefore income), or perhaps putting some away in a term deposit.

The Government recently offered a lifeline allowing  sole traders whose business has been suspended or suffered a reduction in turnover of 20% or more due to the pandemic to access up to $10,000 of their super in 2019-20 and a further $10,000 in 2020-21.

But for sole traders the lifeline is a tight call to make especially given over 70% of Aussies with life insurance hold it through super, and you can lose both life insurance and income protection cover if your balance falls to zero or is too low.

In fact, Industry Super Australia officials recently reported around five% of those who have obtained early access to their superannuation have withdrawn all their funds, translating to over 50,000 Aussies with now empty superannuation accounts. Over 1.2 million Australians have dipped into their superannuation so far.

COVID-19 rarities aside, there are short-term financial incentives to making superannuation contributions where you can.  You can claim a tax deduction for the super contributions you make, they are taxed at 15% meaning you may save tax depending on your situation, and if your income is lower than certain thresholds, you might be eligible for a Government matched co-contribution up to a maximum of $500 when you make a non-concessional contribution.

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Stay informed of any assistance you may be eligible for

As part of the COVID-19 response, there are specific Government payments to help affected Aussies. These include:

  • Income support payments – crisis payments and a temporary fortnightly $550 coronavirus supplement
  • Household support payments – two automatic $750 Economic Support Payments
  • JobKeeper Payment – following registration by an eligible business, the Government will provide up to $1,500 per fortnight per eligible employee until 27 September 2020.

While original support packages left sole traders in the cold, income support has since been extended for six months and sole traders have been added to the list of eligible business types who can apply for the JobKeeper Payment – which may be payable on top of the income support payment of $550 per fortnight. If you are earning less than $1,000 per fortnight, you can receive the coronavirus supplement and still continue to trade, where possible. And while it is income-tested, there is no assets test.

You can find out if you qualify for COVID-19 financial assistance online, and stay up to date on small business programs and assistance available through the Government. Also check in regularly to see what’s being offered to support businesses in your State or Territory, and many local governments are running programs or initiatives – following their social media is an easy way to keep your finger on the pulse or email them and ask if they have a mailing list for updates that you can subscribe to.

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Ask your bank about loan and mortgage holidays

All banks and lenders have financial hardship teams at the ready for customers struggling with financial difficulties (this isn’t specific to COVID-19.) These may include changing the terms of your loan, or temporarily pausing or reducing your repayments for 6 months. The best way to find out more is to contact your bank or lender about a hardship variation.

Even if all is going well right now, staying up to date and organised with your financial paperwork will make life easier should you ever go through financial hardship and require help – be it global, local or personal.  Whether you’re applying for Government financial support or applying to your bank for a loan holiday, being able to quickly pull out and show your tax returns from prior years, for example, will certainly help speed up the process at your end. 

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Insurances for sole traders

There are a broad range of insurances related to sole traders that provide cover across the wide range of industry specific issues. Ensuring you have the correct insurances is an important part of protecting your assets – as a sole trader you are responsible for everything in the business, meaning unlimited liability (if you have a business debt that cannot be repaid, your  personal assets will be used to repay this debt.)

However, when it comes to protecting yourself through hardship, income protection is especially relevant. An income protection policy can cover you if you are unable to work due to sickness or disability – this would include if coronavirus rendered you unable to work due to illness. If you already have a policy, read it carefully to understand any waiting periods or exclusions (and what paperwork you may need to provide) and consider if your product is still the best choice for you.

While the COVID-19 pandemic has left many sole traders in vulnerable financial positions, the silver lining is being able to learn where and how to plan ahead to make tough times a little easier.

Words by Melanie Hearse


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