One of the very first decisions you need to make when starting a business in Australia is choosing your business structure. For most people, it comes down to two options: sole trader or company (Pty Ltd). Each has its own advantages, disadvantages, costs, and tax implications — and the right choice depends on your specific situation.
In this guide, we will compare the two structures side by side, explain the tax differences, and help you figure out which one makes sense for your business. If you want to skip straight to the numbers, our sole trader vs company calculator lets you compare the tax outcomes at any income level.
Sole Trader: The Simple Option
A sole trader is the simplest and cheapest way to start a business. You and the business are legally the same entity. You trade under your own name (or a registered business name), and all the business income and expenses flow through your personal tax return.
Setting up: Getting an ABN is free and takes about 10 minutes online. If you want to trade under a name other than your own, you will need to register a business name (about $39 for one year or $92 for three years). That is it. No company registration fees, no ASIC fees, no complicated structures.
Tax: As a sole trader, your business profit is taxed at your individual marginal rates. For 2025-26, that means:
- $0 – $18,200: 0%
- $18,201 – $45,000: 16%
- $45,001 – $135,000: 30%
- $135,001 – $190,000: 37%
- $190,001+: 45%
Plus 2% Medicare levy on top. So if your business makes a profit of $120,000, you will pay income tax plus Medicare just like an employee earning the same amount. Use our sole trader tax calculator to see exactly what your tax bill would be.
Advantages of being a sole trader:
- Cheapest and easiest to set up
- Minimal ongoing compliance costs
- Full control — you make all the decisions
- Simple tax return (just add business income and deductions to your personal return)
- You keep all the profits
- Easy to close down if you decide to stop
Disadvantages:
- Unlimited personal liability — if the business gets sued or goes into debt, your personal assets (house, car, savings) are at risk
- Higher tax rates at higher income levels (up to 47% including Medicare)
- Harder to bring in investors or partners
- Less credibility with some larger clients or suppliers
- No option to split income with family members (the ATO is very strict about this for sole traders)
Company (Pty Ltd): The Structured Option
A proprietary limited company (Pty Ltd) is a separate legal entity from you. It has its own ABN, its own tax file number, and its own legal obligations. You are a director and/or shareholder of the company, but the company itself earns the income and pays the tax.
Setting up: Registering a company costs $576 with ASIC (as of 2025-26), and you will also need to pay annual ASIC review fees of around $310. Most people use an accountant or online service to set up the company, which might cost another $500 to $1,500. So the upfront costs are significantly higher than a sole trader.
Tax: Companies pay tax at a flat rate. For "base rate entities" (companies with aggregated turnover of less than $50 million where no more than 80% of assessable income is passive), the rate is 25%. For all other companies, it is 30%. Our company tax calculator can work out the tax on your company's profit.
So if your company makes $120,000 in profit, it pays $30,000 in tax (at 25%), leaving $90,000 in the company. Compare that to a sole trader earning $120,000 who would pay about $31,067 in income tax plus $2,400 in Medicare levy — a total of $33,467. At this level, the difference is a few thousand dollars.
But here is the catch: the money sitting in the company is not in your pocket yet. To get it out, you either pay yourself a salary (which is taxed at individual rates) or take dividends (which come with franking credits to avoid double taxation). Our dividend franking calculator shows how this works in practice.
Advantages of a company:
- Limited liability — your personal assets are protected (in most cases)
- Flat 25% tax rate is lower than the top individual rates
- Easier to bring in investors or business partners
- Greater credibility with larger clients and suppliers
- More flexibility in how and when you take income out of the business
- Ability to retain profits in the company for reinvestment at a lower tax rate
Disadvantages:
- More expensive to set up and maintain
- Annual compliance costs (ASIC fees, accountant fees, company tax return, financial statements)
- More complex record-keeping and reporting obligations
- Directors' duties and personal liability for some obligations (like employee super and tax debts)
- Getting money out of the company is not always tax-efficient if your overall income is low
At What Income Level Does a Company Start Making Sense?
This is the big question, and the answer depends on your personal circumstances. As a rough guide:
- Under $80,000 profit: A sole trader structure is almost always simpler and cheaper. The tax difference is minimal, and the compliance costs of a company will eat into any savings.
- $80,000 – $150,000 profit: The tax difference starts to become noticeable. If you can leave some profit in the company (rather than drawing it all out as salary), a company structure might save you money. But factor in the $2,000 to $5,000 per year in extra accounting and compliance costs.
- Over $150,000 profit: A company structure is usually worth serious consideration. The difference between the 25% company rate and the 37% or 45% individual rates becomes significant. You have more flexibility to manage how and when you draw income.
Our sole trader vs company calculator lets you enter your expected profit and compare the total tax under both structures, including the effect of paying yourself a salary and dividends from a company.
Other Structures to Consider
While sole trader and company are the most common structures, there are others worth mentioning:
- Partnership: If two or more people are going into business together, a partnership might work. Each partner pays tax on their share of the profit at individual rates.
- Trust: A family trust (discretionary trust) offers flexibility in distributing income to family members in lower tax brackets. This can result in significant tax savings but comes with setup costs and complexity.
These structures are more complex and usually require professional advice to set up properly.
Practical Considerations Beyond Tax
Tax is important, but it is not the only factor. Think about:
- Risk: If your business involves any risk of being sued (construction, professional services, food, manufacturing), the limited liability of a company is worth a lot.
- Growth plans: If you plan to hire employees, bring in investors, or eventually sell the business, a company structure makes that much easier.
- Complexity tolerance: If you just want to keep things simple and focus on doing the work, a sole trader structure lets you do that without worrying about compliance.
- Employer costs: If you hire staff through a company, use our employer cost calculator to understand the full cost including super, workers comp, and payroll tax.
The Bottom Line
There is no universally "better" structure — it depends entirely on your income level, your risk exposure, your growth plans, and how much complexity you are willing to deal with. For most people starting out, a sole trader is the smart choice — it is cheap, simple, and you can always restructure to a company later as the business grows. Use our sole trader vs company calculator to compare the numbers and make an informed decision.