Starting a business? The big question is: Sole Trader or Company in Australia—which one should you choose? The answer could save you thousands and protect your future.
Why This Choice Matters
When you’re just starting out, it feels easier to grab an ABN and go as a sole trader. Quick, cheap, and low stress. But if you’re serious about growing, your business structure will shape your tax bill, your personal risk, and even how others see your business.
A new client once told me: “I just wanted to keep things simple, so I didn’t think about changing from sole trader.” Years later, she was hit with a surprise tax bill that could have been halved if she’d switched to a company earlier. That’s the kind of decision that makes the difference between just surviving and really thriving.
What Is a Sole Trader in Australia?
A sole trader is the simplest business structure. You are the business. You apply for an ABN, use your TFN for tax, and everything flows into your personal tax return.
- Pros:
- Low setup cost (just an ABN and maybe a business name).
- Easy to understand and manage.
- Cons:
- Unlimited liability. If something goes wrong, your personal assets (like your home) are on the line.
- Income taxed at individual marginal tax rates. Once you start earning over $90k, this becomes expensive.
- Harder to bring in partners or investors.
One client said: “I didn’t realise being a sole trader meant my house was technically on the line if something went wrong. I thought my business was separate.”
What Is a Company?
A company is a separate legal entity. Think of it as a “person” that exists on paper—it can own property, sign contracts, pay tax, and employ people.
- Pros:
- Limited liability: your personal assets are protected in most cases.
- Flat 25% company tax rate (for base rate entities).
- Easier to raise capital, add partners, or grow.
- Greater credibility with banks, suppliers, and clients.
- Cons:
- Higher setup and ongoing costs (ASIC fees, company tax return, accounting).
- More administration and compliance.
- Money in the company belongs to the company—you need to take wages, dividends, or director loans to correctly access it.
For an in-depth guide, check the government Business Structure guide.
Tax Example: Sole Trader vs Company
Let’s break this down with real numbers.
Imagine your business makes $120,000 profit:
- Sole Trader – taxed at individual rates. You’ll pay around $30,700 in tax.
- Company – Pay the director $18,000 with no tax and the company pays 25% on the balance = $25,500 tax.
The key difference? A company gives you flexibility. You can retain profits in the company for reinvestment, pay yourself gradually, and plan your tax better.
Key Differences in Business Structure
Business Structure and Liability
If you’re a sole trader, your debts are your debts. If your business can’t pay, creditors can chase your personal assets.
In a company, liability is limited. Unless you’ve signed personal guarantees, your home and personal savings are much safer.
Business Structure and Compliance
- Sole traders lodge one tax return.
- Companies lodge a separate company tax return AND pay an ASIC annual fee (around $329).
- Directors must sign solvency resolutions each year.
As business.gov.au explains, a company is more complex but more protective.
Business Structure and Superannuation
- Sole traders aren’t required to pay themselves super.
- Companies paying directors wages must pay super guarantee—currently 12% for 2025–26.
It might feel like extra admin, but it forces you to invest in your retirement.
Business Structure and GST
The GST threshold is $75,000 for both. But here’s the insight—clients often expect a company to be registered, even below the threshold, because it looks more professional.
When It Went Wrong
One of my clients, Sarah, ran a design business as a sole trader. Things were fine until a client refused to pay a $25,000 invoice. Suddenly, she had debt that she couldn’t cover—and because she was a sole trader, it was her personal debt. She feared losing her home. She raded her way out of that bind and asked for advice.
We restructured her into a company. With contracts tightened, assets protected, and tax planning in place, she turned things around. Within a year, Sarah was back in control, landing bigger clients who took her more seriously because she was operating as a company.
That’s the difference a business structure can make—not just numbers, but peace of mind.
Switching Later – You’re Not Stuck
Worried you’ll make the wrong choice? Relax. Many people start as sole traders, then restructure into companies as they grow.
Yes, there can be costs—stamp duty on asset transfers, potential capital gains on goodwill—but with advice, you can manage the timing to reduce these.
The important thing is starting with the right setup for where you are now and knowing you can adapt later.
Common Mistakes to Avoid
- Staying a sole trader too long.
- Mixing personal and business accounts. Always separate them.
- Treating company money like your wallet. The ATO watches closely.
- Skipping professional advice. Google won’t protect you in an audit.
For more mistakes to avoid, check our article on What Every Director Need to Know.
Conclusion: Sole Trader or Company in Australia
So—Sole Trader or Company in Australia?
- Sole trader: quick, simple, cheap. But you carry all the risk, and tax can climb fast.
- Company: more admin and costs, but stronger protection, lower tax rates, and credibility.
The key takeaway is this: the right business structure isn’t about where you dream of being in ten years—it’s about what fits your situation right now, with flexibility to change later.
If you’re still unsure which structure is right for you, don’t risk guessing. Book a meeting with me today—we’ll map out the smartest option for your business:
And while you’re at it, grab one of our free guides packed with tax and business tips:
Make the choice that protects your future and helps your business grow.
