Choosing the best business structure in Australia is one of the first big decisions you’ll make as a business owner, and one of the most important. Get it right and you’ll save money, protect your assets, and set yourself up for growth. Get it wrong, and you might be paying thousands more in tax than you need to. No pressure.

Let’s break down the sole trader vs company debate in plain English, so you can figure out which structure actually suits your situation, not just what worked for your mate’s cousin’s dog-grooming side hustle.

What’s the Difference? Sole Trader vs Company

At the most basic level, a sole trader is you running a business. There’s no legal separation between you and the business – you are the business.

A company (specifically a Proprietary Limited or Pty Ltd) is a separate legal entity. In the eyes of the law, the company is its own “person.” It can own assets, take on debts, and enter into contracts – all independently of you.

Think of it this way: as a sole trader, you and your business share a wallet. With a company, the business has its own wallet entirely.

Setting Up Your Business Structure

Sole Trader

Setting up as a sole trader is about as easy as it gets. You register for an Australian Business Number (ABN) and you’re in business. There are no registration fees, no complex paperwork, and no ongoing obligations to the Australian Securities and Investments Commission (ASIC). If your turnover hits $75,000 or more, you’ll need to register for GST, but that applies to both structures.

This makes it ideal if you’re testing a business idea, freelancing on the side, or just getting started.

Company

Setting up a company is a bit more involved. You’ll need to register with ASIC, appoint at least one director (who’ll need a Director ID), choose a company name, and apply for a separate ABN and Tax File Number. There are registration costs upfront, and ASIC charges an annual review fee of around $329.

More paperwork? Yes. But you’re also building a more robust foundation, and that matters as your business grows.

Tax: Where Things Get Interesting

This is usually the main reason people start Googling “sole trader vs company” at 11pm on a Tuesday night. And fair enough, the tax differences are significant.

Sole Trader Tax

As a sole trader, all your business profit is treated as your personal income. You’ll pay tax at Australia’s individual tax rates, which for 2025–26 look like this:

On top of that, there’s a 2% Medicare levy on most taxpayers. So if your business is doing well (say, $150,000 in profit), you could be paying up to 39% on the top portion of your income. Ouch.

There is a small business income tax offset for sole traders (up to $1,000 per year) but it doesn’t move the needle much once your income climbs.

Company Tax

A company pays tax on its profits at a flat rate. For a base rate entity (aggregated turnover under $50 million), that rate is 25%. That’s it. No progressive brackets, no escalating rates.

The company can then pay you a salary (which is tax-deductible for the company), contribute to your super, and distribute remaining profits as dividends, complete with franking credits so you’re not taxed twice on the same income.

This means at higher income levels, a company structure can deliver genuine tax savings. Many accountants suggest seriously considering the switch when your net business profit consistently exceeds $80,000 to $100,000 per year.

Important caveat: If you’re essentially a one-person operation and your income is primarily from your personal skills or labour, the ATO’s Personal Services Income (PSI) rules may apply. These rules can limit the tax benefits of operating through a company, so it’s worth getting advice before making the leap.

Asset Protection: The Elephant in the Room

Here’s where the sole trader vs company business structure decision gets properly serious.

As a sole trader, there is no legal separation between you and your business. If your business gets sued, can’t pay its debts, or faces a claim, creditors can come after your personal assets. Your car, your savings, potentially even your home.

A company provides what’s known as the “corporate veil.” Because it’s a separate legal entity, the company’s debts are generally the company’s problem, not yours personally. Your liability as a shareholder is typically limited to the value of your shares, which for most small businesses is a nominal amount.

Now, this protection isn’t absolute. Directors can still be held personally liable in certain circumstances (like trading while insolvent, or providing personal guarantees on loans). But it’s a significantly stronger position than having no protection at all.

If you’re in an industry where things can go wrong (construction, healthcare, logistics, professional services) this alone might be reason enough to consider a company structure. You can also explore the idea of a trust structure for additional asset protection and flexibility, although trusts come with their own set of complexities (more on that below).

Ongoing Compliance: What’s Actually Involved?

Sole Trader

Your ongoing obligations are relatively light. You lodge your individual tax return each year (including your business income), keep records of income and expenses, and manage your BAS if you’re registered for GST. That’s about it.

Company

Companies have more compliance responsibilities under the Corporations Act 2001. You’ll need to:

• Lodge a separate company tax return each year
• Pay the annual ASIC review fee
• Maintain proper company records and registers
• Notify ASIC of any changes to company details (directors, addresses, etc.)
• Ensure the company doesn’t trade while insolvent

You’ll also likely need an accountant who’s comfortable with business structure, which means higher accounting fees compared to a straightforward sole trader return. But for businesses with growing complexity, that professional support is an investment, not just an expense.

What About Trusts?

When people search for the best business structure in Australia, trusts (particularly discretionary or family trusts) inevitably come up – and for good reason.

A trust can offer flexible income distribution (you can split income among family members), strong asset protection, and potential tax advantages. However, trusts also come with higher setup and ongoing costs, more complex accounting requirements, and increasing ATO scrutiny, particularly around Section 100A and “reimbursement agreements.”

Trusts aren’t necessarily better or worse than a company – they serve different purposes. Many businesses actually use a combination (like a company acting as trustee for a trust) to get the best of both worlds.

This is where the “company vs trust” question gets genuinely complex, and it’s one of those areas where getting tailored professional advice isn’t optional, it’s essential. What works brilliantly for one business could be completely wrong for another.

Sole Trader vs Company: Which One Should You Choose?

Here’s a simple framework to help you think your business structure through:

A sole trader structure might suit you if:

• You’re just starting out or testing a business idea
• Your income is relatively modest (under $80,000 in net profit)
• You want minimal paperwork and compliance costs
• Your business carries low risk of liability claims
• You want to keep things simple and get going quickly

A company structure might suit you if:

• Your net business profit consistently exceeds $80,000–$100,000
• You want to protect your personal assets from business risks
• You’re planning to grow, hire staff, or bring in investors
• You want access to the flat 25% company tax rate
• You’re looking to build a business that could be sold in the future

And remember: you don’t have to get it right forever on day one. Many businesses start as sole traders and transition to a company as they grow. The ATO’s rollover provisions can help defer capital gains tax when you restructure, and with the right advice, the transition can be smooth and straightforward.

The Bottom Line

There’s no universally “better” structure, only the one that’s right for your business, at this stage of your journey. The best business structure in Australia depends on your income, your risk profile, your growth plans, and your personal circumstances.

What is universal is that getting proper advice early can save you a lot of headaches (and dollars) down the track. The cost of setting up the right structure from the start is almost always less than the cost of fixing the wrong one later.

Need Help Figuring It Out?

At HPartners, we help business owners across Brisbane and beyond navigate exactly these kinds of decisions – from structuring and asset protection to tax planning and business advisory. Whether you’re just starting out or running an established business, our team of accountants, financial planners, and legal professionals work together so you get advice that actually fits your whole picture, not just one piece of the puzzle.

Book a chat with our team and let’s make sure your business structure is working for you, not against you.

Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it, you should consider its appropriateness for you, having regard to those factors. Before making any decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement.