How structure advice usually works
A practical sole trader vs company review starts with a short discovery call and a numbers‑first comparison. The goal is to model after‑tax outcomes, risk and admin so you can choose with confidence.
Typical steps
- Discovery: revenue, profit margin, risk exposure, asset protection needs, hiring plans, PSI risk, investors and funding.
- Tax modelling: compare personal marginal rates vs company tax (25% base rate entity or 30%), show take‑home after super/PAYG, and what happens if profits are retained.
- Workflow and software: confirm bookkeeping, BAS/GST, payroll and reporting processes in Xero, MYOB or QuickBooks.
- Setup (if incorporating): ASIC registration (ACN), shareholding, director ID, TFN, ABN, GST/PAYG, bank accounts, super clearing house, STP payroll, and initial board minutes.
- Changeover plan: move invoices, contracts and assets across, update insurances and supplier records, and handle any roll‑over relief if applicable.
- Ongoing review: quarterly BAS, super and PAYG cycles; annual tax planning; Division 7A monitoring; ASIC annual review; management reporting.
Australian context to keep in view
- Tax rates: sole trader income is taxed at individual marginal rates plus Medicare levy; companies pay 25% if they’re a base rate entity (generally under $50m turnover and primarily business income) or 30% otherwise.
- Liability: sole traders have unlimited personal liability. Companies offer limited liability, but directors can be personally liable for certain debts (e.g., PAYG withholding, GST and super via director penalty notices) and for personal guarantees or negligence.
- Getting paid: sole trader drawings are not a deductible wage; tax is paid via your return and PAYG instalments. Companies pay wages (PAYG, super, STP) and/or dividends (potentially franked). Watch Division 7A for director loans.
- GST and ABN: an ABN is required to trade; register for GST once turnover is $75k+ (NFPs $150k). If you don’t quote an ABN when required, payers may have to withhold 47%.
- Setup and costs: ABN and TFN for sole traders are free. Company setup incurs ASIC fees (around $576 to register) plus an annual review fee (around $310), and usually higher bookkeeping and compliance costs.
- PSI and contractors: if most income is from your personal effort, PSI rules may limit deductions and income splitting whether you’re a sole trader or a company.
- Growth and exit: companies are better for bringing in investors, issuing shares and transferring ownership. Plan early for small business CGT concessions and any roll‑over relief if changing structures.
What to compare before you commit
Scope
Confirm the review includes tax modelling, risk/asset protection, setup steps (ABN/ASIC, TFN, GST/PAYG), payroll/STP, bank accounts and a clean changeover plan.
Software fit
Ask how your provider will configure Xero, MYOB or QuickBooks for a company vs a sole trader (chart of accounts, payroll, expense claims, directors loans, reporting).
Turnaround and communication
Get clear timelines for registration, STP, super setup and first BAS, plus who you contact for urgent issues during quarter‑end and year‑end.
Commercial fit
Check pricing (quote vs hourly), inclusions (ASIC fees, constitutions, minutes), meeting rhythm, and whether you’ll receive a short decision memo you can keep.
Best next steps
Do a quick self‑check, then get advice targeted to your numbers.
- Revenue and profit: estimate next 12 months by quarter, and whether you’ll retain or distribute profits.
- Risk and assets: consider personal asset protection needs, industry risk and contract requirements.
- People: hiring plans, contractors, and whether payroll and HR systems are needed soon.
- Funding and ownership: any investors now or later, shareholding needs, and exit plans.
- Compliance appetite: admin tolerance for ASIC reviews, payroll, STP and Division 7A.
If your answers point to growth, risk or retained profit, a company may fit. If you’re validating a new idea with simple operations, a sole trader start can be sensible—just plan when to switch.
Frequently asked questions
What is the key difference between a sole trader and a company in Australia?
A sole trader is you operating as an individual, with unlimited personal liability and taxed at your marginal rates. A company (Pty Ltd) is a separate legal entity with limited liability and a company tax rate (25% for most small trading companies). Companies add ASIC obligations and extra admin but can improve asset protection and flexibility for growth and investment.
When is a company better than a sole trader for tax?
When profits are consistently strong and you plan to retain earnings to reinvest. Companies pay a flat rate (often 25%), which can be lower than top personal brackets. But how you take money out affects the outcome—wages need PAYG and super; dividends may be franked; and director loans risk Division 7A. Model both structures against your expected profit and cash needs.
Can I start as a sole trader and switch to a company later?
Yes. Many start lean as a sole trader, then incorporate as revenue, risk or headcount grows. Plan for asset transfers, contracts, invoices, bank accounts and software cutover. There may be CGT or stamp duty, but small business roll‑over relief can help when criteria are met.
How do I pay myself as a sole trader vs a company?
Sole traders withdraw drawings and pay tax via their personal return and PAYG instalments; drawings aren’t deductible wages. Companies pay wages (with PAYG withholding, super guarantee and STP reporting) and/or dividends; get advice to avoid Division 7A issues on director/shareholder loans.