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.

General Information Only: This article is for educational purposes and does not constitute financial, tax or legal advice. Always consult a qualified professional for advice specific to your situation.
## Tax Deductions: Where Sole Traders and Companies Differ The tax deduction landscape is where sole traders and companies start to diverge meaningfully. As a sole trader, you claim deductions against your personal income tax return. This means you're working with the standard personal tax-free threshold ($18,200 in 2026) and claiming eligible work-related expenses directly on your individual tax return. A company operates differently. It's a separate legal entity that pays tax on its own profit at the corporate tax rate (currently 30% for large companies, 25% for companies with aggregated turnover under $50 million). The deductions available are similar—vehicle expenses at the ATO rate of 88 cents per kilometre, tools, materials, uniforms, and home office costs—but they're claimed at the company level rather than your personal level. Here's the practical difference: if you're earning $120,000 as a sole trader, you pay personal income tax on that amount (minus deductions) at the marginal rate, which reaches 45% plus Medicare levy at higher income levels. If that same $120,000 is earned through a company, the company pays 25% tax on profits, and you can choose how much to withdraw as salary or dividends. This flexibility is one reason higher-earning tradies often incorporate. Vehicle expenses deserve specific attention. Whether sole trader or company, you can claim either the simplified 88c/km method or actual expenses (fuel, maintenance, registration, insurance). Most tradies find the simplified method easier, particularly if you're using tools like Tradify to track mileage automatically. Superannuation contributions also differ. As a sole trader, you claim personal super contributions as a tax deduction (up to $27,500 per year in non-concessional contributions, or use the concessional cap of $30,000). As a company director, you're required to contribute the superannuation guarantee (currently 11.5%) to your employees, and you can salary sacrifice your own contributions. This is actually more straightforward for companies. The instant asset write-off available until 30 June 2026 (currently $20,000) can be claimed by both structures, but the timing and tax benefit differ slightly depending on your position in the financial year and income level. ## Managing Cash Flow and GST When You Scale Up Cash flow is the lifeblood of any tradie business, and your business structure affects how you manage it. **Sole traders** collect GST on invoices and remit it quarterly to the ATO. You keep the cash in your business account until the quarterly return date, which provides a temporary cash flow boost. However, you're personally liable for paying the GST—if cash is tight and you've spent the money, you're still obligated to pay the ATO on time or face penalties and interest. **Companies** operate under the same GST regime, but there's a psychological separation. The money belongs to the company, not you personally. This actually helps some tradies avoid the temptation to spend money earmarked for tax. Others find it creates more administrative complexity. A critical consideration: once you exceed the $75,000 GST turnover threshold, you must register for GST. This is mandatory, not optional. Many tradies don't realize this applies to both structures equally. Being registered means charging GST on your invoices but also claiming GST back on expenses—which is actually beneficial overall, but it does create more bookkeeping. If you're growing and regularly carrying debtors (customers who haven't paid yet), the sole trader structure has an advantage: you don't remit GST until you're actually paid (if you account on a cash basis). Companies must account on an accruals basis, meaning GST is due based on invoice date, not payment date. For high-turnover tradies with significant outstanding invoices, this can create cash flow pressure. Using accounting software like Xero helps both structures manage this complexity, automatically calculating GST liability and flagging quarterly obligations. Insurance and liability also affect cash flow planning. BizCover quotes often differ slightly between sole traders and companies, with companies sometimes receiving preferential rates due to perceived lower personal risk to the director.

TIP: If you're transitioning from sole trader to company, plan the changeover carefully. June 30 is often ideal as it aligns with the financial year. Work with an accountant to understand the tax implications and ensure your ABN registration and GST status transfer smoothly.

## Sole Trader vs Company: Quick Comparison | Factor | Sole Trader | Company | |--------|------------|---------| | **Setup cost** | $0–$100 (ABN registration free) | $400–$1,500 (ASIC registration + legal setup) | | **Ongoing compliance** | Minimal (annual tax return) | Moderate (annual tax return + financial reports + director duties) | | **Personal liability** | Unlimited | Limited to company assets | | **Tax rate (typical)** | 37–47% (personal marginal rate) | 25% (company rate) | | **Deduction claims** | Personal tax return | Company tax return | | **Superannuation** | Self-managed, up to $30k cap | Employer contribution mandatory (11.5%) | | **GST accounting** | Can use cash basis (if eligible) | Accruals basis mandatory | | **Flexibility on income** | All profit is yours to keep | Choose salary/dividends/retention | | **Asset protection** | None | Moderate | | **Borrowing ease** | Lenders want personal guarantees | Slightly easier, but still may want personal guarantees | | **Suitable income level** | Under $100,000 | Over $100,000 or high liability exposure | ## Frequently Asked Questions

Should I incorporate as a company before I hit six figures?

Not necessarily. If you're at $80,000–$100,000 turnover, calculate the tax benefit first. A company structure becomes worthwhile when the corporate tax rate (25%) is meaningfully lower than your personal marginal rate, and when you can reinvest profits or structure income strategically. If you're likely to draw out all profits as salary anyway, the company structure adds complexity without benefit. However, if you're exposed to liability (public liability claims, workplace injuries), incorporating earlier makes sense. Consult your accountant with your actual figures.

Can I change from sole trader to company later without penalties?

Yes, but timing matters. You can convert to a company structure at any point, though June 30 (end of financial year) is cleanest. There are no ATO penalties for changing structure, but your accountant will need to coordinate the transition, including ABN changes, GST continuity, and tax position management. Expect to pay accounting fees for the transition. Changing structure mid-year is possible but messier administratively.

Do I need different insurance as a sole trader vs. a company?

The cover you need—public liability, tools, vehicle, income protection—doesn't change based on structure. However, the entity holding the policy does. As a sole trader, policies are in your personal name. As a company, they're in the company name. Some insurers (including BizCover) may quote differently between structures. Always declare your actual structure honestly—misrepresenting it can void claims.