Sole Trader vs Company for Tradies Australia — Which is Better?

Most tradies start as sole traders and never think about their business structure again. But for some, switching to a company (Pty Ltd) can save thousands in tax every year. Here is the honest comparison — including when it makes sense to switch and when it doesn't.

The Key Difference

As a sole trader, you and your business are the same legal entity. Your business income is your personal income. You pay personal income tax on it at your marginal rate. Your personal assets (house, savings, car) are at risk if the business gets sued.

As a company (Pty Ltd), your business is a separate legal entity. The company pays tax at the company rate (25–30%). Your personal assets are generally protected from business debts and lawsuits. But it costs more to set up and maintain, and has more ongoing compliance obligations.

Sole Trader — Pros and Cons

Company (Pty Ltd) — Pros and Cons

The Tax Comparison

This is where it gets interesting. For a sole trader earning $100,000 net profit, the tax is calculated at personal rates — approximately $25,000 in tax (including Medicare levy).

For a company earning the same $100,000, the company pays 25% tax ($25,000) — similar at this level. The difference is that the company can retain some earnings inside the company (taxed at 25%), rather than distributing everything as salary (taxed at your marginal rate).

When to Consider Switching to a Company

• Net profit consistently above $120,000 — the tax savings start to outweigh the costs
• High liability risk — working on large commercial projects where a mistake could lead to significant claims
• Bringing in a business partner — a company structure handles multiple owners much better
• Want to build the business for sale — companies are easier to sell than sole trader businesses
• Planning to employ multiple staff — company structure provides clearer separation

Setup and Running Costs

→ Related: Best Business Bank Accounts for Australian Tradies 2026 — compare fees, features and zero-fee options.

→ Related: Best Business Bank Accounts for Australian Tradies 2026 — compare fees, features and zero-fee options.

## Tax Savings: When the Numbers Actually Add Up for Tradies The biggest reason tradies consider becoming a company is tax. Here's the reality: if you earn $100,000 as a sole trader in 2025–26, you'll pay income tax at the top marginal rate (45% plus Medicare levy). A company pays a flat 30% corporate tax rate. **But here's what most tradies get wrong:** that 30% tax sits *inside* the company. When you take money out as dividends, you pay tax again on top (franking credits help, but you still pay). So the real tax rate isn't as simple as it looks. Let's use real numbers. Say you earn $120,000: **As a sole trader:** - Income tax + Medicare levy = ~$33,900 - Net take-home = $86,100 **As a company:** - Corporate tax = $36,000 - Money remaining in company = $84,000 - If you pay yourself a dividend: you'll pay additional tax (less franking credits) - Realistic net to you = $70,000–$76,000 *Doesn't look good yet.* But here's where strategy matters. **A company wins when you:** - Earn $150,000+ consistently (the tax gap widens) - Reinvest profits back into the business (vehicles, tools, equipment) - Hire family members at reasonable wages (income splits) - Plan for long-term wealth (retaining earnings for growth) If you earn $80,000–$120,000 and take most of it home, staying a sole trader often saves you money *and* complexity. **The real saving comes from splitting income.** If you pay your spouse a legitimate wage for bookkeeping, admin, or other work, you claim a deduction while they pay tax at potentially a lower rate. This works as both sole trader and company, but companies make it cleaner from a tax office perspective. ### Superannuation: A Hidden Advantage for Companies Most tradies overlook superannuation strategy. As a sole trader, you contribute to super yourself—the current cap is $30,000 per year. These contributions are concessional (15% tax vs. your marginal rate), which is good. **As a company, you can contribute $30,000 to your own super *plus* set up a salary sacrifice arrangement** where the company pays super for you from pre-tax income. This stacks differently and compounds better over decades. More importantly: if you have employees, a company structure makes super administration cleaner. You're already running payroll software like Tradify or integrated accounting software—adding super contributions is built in. **For solo tradies earning under $100,000?** Superannuation advantage is minimal. The difference between contributing $30,000 yourself vs. having a company do it is negligible in tax terms. **For tradies earning $150,000+ with plans to hire staff?** A company gives you flexibility and saves admin headaches down the track. --- ## Liability and Insurance: Does Structure Really Protect You? This is where tradies hear conflicting advice. Many think: "If I'm a company, I can't be personally sued." **This is partially true, but not a blanket shield.** A company *does* separate your personal assets from business debt. If your business owes $50,000 and you're a sole trader, creditors can chase your personal bank account and home. As a company, they chase the company assets (though you can still be pursued for director's loans). **However:** for professional negligence claims in trades, courts often pierce the corporate veil anyway. If you personally install dodgy wiring and someone gets injured, you're liable regardless of structure. Insurance matters more than structure here. The *real* liability protection comes from: 1. **Professional indemnity insurance** (more important than company structure) 2. **Public liability insurance** (required either way) 3. **Correct asbestos/electrical/plumbing certifications** (required either way) BizCover offers both structures—cost difference is minimal. A good policy protects you far more than switching to a company. **Real liability advantage?** A company stops creditors from chasing your house if the business goes broke. That's worth something, but insurance matters more. --- ## Quick Comparison: Sole Trader vs Company | Factor | Sole Trader | Company (Pty Ltd) | |--------|-------------|-------------------| | **Tax rate** | Up to 45% + 2% Medicare levy | Flat 30% (plus dividend tax) | | **Setup cost** | $0–$50 (ABN only) | $250–$500 (ASIC registration) | | **Annual compliance** | Income tax return | Tax return + annual statements (ASIC) | | **Accounting software** | Xero, basic tools | Xero, more complex setup | | **Profit reinvestment** | Pay tax, then reinvest | Keep more inside company (better growth) | | **Personal liability** | Unlimited (but insurance matters more) | Limited (company assets only) | | **Best for income** | Under $100,000 | Over $150,000 consistently | | **Hiring staff** | Works, but messier payroll | Cleaner, more scalable | | **Depreciation (vehicles, tools)** | Claimed personally | Claimed by company | | **Instant asset write-off** | $20,000 threshold (to 30 June 2026) | Same $20,000 threshold | --- ## FAQs: Your Questions Answered ---