(b) That's right. Because a sole trader is the owner of their business, the profits that are made in the course of business belong directly to them. In other words, such profits are part of the sole trader's income and must be included on their personal tax return. Deductions can be made for allowable expenses, after which the profits are taxed at the sole trader's personal marginal rates.

A sole trader is not considered to be an employee of their business. Any business income that a sole trader uses for personal expenses is not tax-deductible as wages.

These arrangements work well enough while business turnover is relatively small but, as the business grows, other business structures offer more flexible alternatives for managing tax liabilities.