✅ Updated 2026

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.

📋 In This Article

  1. →The key difference
  2. →Sole trader pros and cons
  3. →Company pros and cons
  4. →The tax comparison
  5. →When to consider a company
  6. →Setup and running costs
  7. →FAQs

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

ProsCons
Free to set up (just an ABN)Personal assets at risk if sued
Simpler tax — one annual returnAll profit taxed at your marginal rate
Less admin and complianceHarder to split income with a partner
Easy to operate and close downCan appear less professional to some clients
Lower accounting costsNo ability to retain earnings in the business

Company (Pty Ltd) — Pros and Cons

ProsCons
Personal assets protected from business debts$538 ASIC registration fee + ongoing costs
Lower company tax rate (25% for small businesses)More complex tax — company return + personal return
Ability to retain earnings in the companyHigher accounting fees ($1,500–$3,500/year)
Can split income via dividends (with a partner)More ongoing compliance obligations
More credible for larger commercial contractsDirector duties and legal obligations

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).

The general rule: A company structure typically becomes worth considering when your trade business is generating $120,000+ in net profit consistently. Below that, the setup costs, extra accounting fees and complexity usually outweigh the tax savings.

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

CostSole TraderCompany
SetupFree (ABN only)~$538 ASIC + ~$1,000 legal/accounting
Annual accounting$400–$800$1,500–$3,500+
ASIC annual review feeNil$338/year
ComplexityLowHigh

Can I switch from sole trader to company later?

Yes — you can switch at any time. The process involves setting up the company, transferring assets, updating your ABN/ACN and notifying clients. It's best done at the start of a new financial year. Your accountant can manage this process.

Do I need a lawyer to set up a company?

Not strictly required, but recommended. A lawyer or accountant can set up a company constitution, shareholder agreement and director resolutions correctly. Doing it yourself through ASIC directly is possible but you may miss important protections.

What about a trust structure?

Some tradies use a discretionary (family) trust to split income between family members and reduce tax. Trusts add another layer of complexity and cost on top of a company. Generally only worth considering when net profit exceeds $200,000+ and you have a family member to distribute income to. Talk to your accountant.