Sole Trader vs Company: Which Business Structure Is Better for Australian Tradies in 2026?

and does not constitute financial, tax or legal advice. Always consult a

The question of whether to operate as a sole trader or set up a company

is one that comes up regularly for growing tradies. Both structures have

genuine advantages. The right choice depends on your income level, your

risk exposure, your growth plans, and your personal circumstances.

There's no universal answer, but there are clear principles that should

guide the decision.

This guide explains the key differences between sole trader and company

structure for Australian tradies, with a focus on the tax and financial

implications that matter most.

How Sole Trader Tax Works

As a sole trader, your business income is your personal income. You

lodge a single individual tax return each year that includes your

business income and expenses. You pay tax at the individual marginal tax

rates, which in 2025-26 are 0% up to $18,200, 19% from $18,201-$45,000,

32.5% from $45,001-$135,000, 37% from $135,001-$190,000, and 45% above

$190,000 (plus the Medicare levy of 2%).

Sole traders can access the small business income tax offset (up to

$1,000 per year) and are eligible for the instant asset write-off for

business assets. The administrative simplicity of sole trader structure

-- one tax return, no corporate compliance -- is a genuine advantage for

many tradies.

How Company Tax Works

A company is a separate legal entity. It pays the company tax rate --

currently 25% for companies with aggregated turnover under $50 million

(the base rate entity rate). A tradie operating through a company

doesn't pay personal income tax on company profits directly -- instead,

the company pays tax on its profits, and when you draw money out as a

dividend, you get a franking credit for the tax already paid.

The immediate tax advantage of a company is when company profits exceed

what you need to draw for personal living. At $120,000 of taxable

income, a sole trader pays 32.5% marginal tax. A company pays 25%. That

7.5% difference on $120,000 is $9,000 per year -- real money that can be

reinvested in the business or retained for a specific purpose.

The Personal Liability Difference

As a sole trader, you are personally liable for all business debts and

obligations. If a job goes wrong and you face a significant liability

claim, your personal assets -- your house, your savings -- are at risk. A

company, as a separate legal entity, limits your liability to what's in

the company. Creditors can't easily reach your personal assets.

In practice, this liability protection has limits. Most lenders require

personal guarantees from directors of small companies, meaning your

personal liability isn't fully eliminated when borrowing. And as a

working director, you may still have personal obligations for certain

types of company debts (like PAYG withholding liabilities). But for

general trade business liability, the company structure does offer

meaningfully more protection.

When a Company Makes Sense for a Tradie

For most tradies, a company starts to make financial sense when taxable

profit consistently exceeds $100,000-$120,000 per year. Below that

threshold, the tax advantage of the lower company rate is often

outweighed by the higher setup and ongoing compliance costs.

Compliance costs for a company include: annual ASIC fees ($310 for a

proprietary company in 2025-26), separate company tax return (additional

accountant fees of $500-$1,500 or more per year), and potentially more

complex bookkeeping requirements.

At $80,000 of profit, the tax saving is modest and the extra compliance

cost probably negates it. At $150,000 of profit, the tax saving is

substantial and the company structure is worth considering seriously.

Paying Yourself Through a Company

In a company structure, you typically pay yourself in one or more ways:

a salary as an employee-director (wages are a deductible company

expense), dividends from company profits, or a directors' fee. Getting

the mix right -- balancing salary (which you pay PAYG and super on) with

dividends (which carry franking credits but no super) -- requires tax

planning.

The most common approach for a tradie-director is to pay themselves a

market-rate salary that covers personal living expenses, with any

additional company profit either retained in the company or distributed

as franked dividends. Your accountant should be advising you on this

annually.

The Trust Alternative

A discretionary trust (family trust) is a third structural option that

many tradie accountants recommend in preference to a company,

particularly for established businesses with family members who can

receive trust distributions. A trust offers flexible income splitting --

distributing profits to family members on lower tax rates -- which can

reduce the family's total tax bill significantly.

Trusts are more complex to administer than sole trader or company

structures and require proper setup and ongoing management. They are,

however, one of the most tax-effective structures for a tradie whose

spouse earns less than they do and whose business is generating

consistent profit.

GST: The Same Regardless of Structure

GST registration and BAS obligations are the same regardless of whether

you operate as a sole trader, company or trust. Once your turnover

exceeds $75,000, you must register for GST and lodge BAS regardless of

your structure. This shouldn't be a factor in your structural decision.

Changing Structure: What's Involved

Moving from sole trader to company structure isn't just an

administrative change -- it has tax and legal implications. Assets owned

by you personally need to be transferred to the company. Contracts may

need to be novated (transferred). You'll need a new ABN and TFN for the

company, new bank accounts, and updated invoicing and marketing

materials.

Done correctly with the right tax planning -- particularly around the CGT

small business concessions and the Division 7A rules for company loans --

restructuring can be done without significant tax cost. Done without

advice, it can trigger unexpected tax bills. This is a decision that

absolutely requires input from a qualified accountant.

The Bottom Line

Most tradies starting out are best served by sole trader structure --

simple, cheap, and appropriate for lower income levels. As your business

grows and your profits consistently exceed $120,000, a company or trust

structure is worth serious consideration. The tax savings at higher

income levels are substantial and compound over time.

Talk to your accountant before making any structural change. The right

answer depends on your specific numbers, your family situation, your

assets, and your plans for the business. This is not a decision to make

based on what your mate down the road did -- get proper advice for your

specific situation.