Your business details
Income & expenses
Company scenario (if applicable)
Personal circumstances
👤 Sole Trader
Net profit—
Income tax—
Medicare levy—
Total tax—
Effective tax rate—
Take-home income—
🏢 Pty Ltd Company
Net profit—
Director salary tax—
Company tax on remainder—
Total tax paid—
Effective tax rate—
Take-home + retained—
—
—
—
Structure comparison — beyond tax
Setup cost
Free
~$1,000
Annual compliance cost
Low (~$500)
Higher (~$2,500)
Personal liability
Unlimited
Limited
Asset protection
None
Strong
Income splitting
Not available
Possible
CGT 50% discount
✅ Available
❌ Not available
Raising investment / selling
Difficult
Much easier
Superannuation flexibility
Standard
More options
Choosing the right business structure in Australia
The crossover point
A company generally becomes tax-advantageous once your business profit exceeds around $100,000–$120,000 per year. Below this, the sole trader structure is often simpler and comparable in tax cost.
Asset protection is critical
Tax savings are only one reason to incorporate. A Pty Ltd company provides limited liability — protecting your personal assets (home, savings) from business creditors. This alone often justifies incorporation.
Retained profits in a company
A key company advantage is leaving profits in the company at 25% tax rather than taking them as personal income at up to 47%. This is powerful for reinvestment but the money stays in the company, not your pocket.
Consider a trust structure
A discretionary (family) trust combined with a corporate trustee offers the best of both worlds — income splitting to family members, asset protection and flexibility. Discuss this with your accountant if your profit exceeds $150,000.
Director salary strategy
As a company director, you control your own salary. Paying yourself a salary up to the top of the 19% tax bracket and leaving the rest in the company at 25% is a common tax minimisation strategy.
Get professional advice
Business structure decisions have long-term implications for tax, liability and estate planning. A one-hour consultation with a good accountant ($200-400) is one of the best investments any business owner can make.
Free tips for Australian business owners
Tax, structure and growth tips every week. No spam, unsubscribe anytime.
Frequently asked questions
What is the company tax rate in Australia?
Base rate entities (most small businesses with turnover under $50 million that are predominantly passive income) pay 25% company tax. The general company tax rate is 30% for larger companies. This compares favourably to personal marginal tax rates of up to 47% (including Medicare levy).
At what income does a company become more tax efficient?
The crossover point varies depending on your circumstances, but generally once your business profit exceeds $100,000–$120,000 per year, incorporating as a Pty Ltd company starts to offer meaningful tax savings. Below this level, the additional compliance costs often outweigh the tax benefits.
Can I switch from sole trader to company later?
Yes — you can change your business structure at any time. However, there are tax and legal implications when transferring business assets to a company, including potential CGT and stamp duty. Always get professional advice before restructuring an existing business.
What are the main disadvantages of a Pty Ltd company?
Higher setup and ongoing compliance costs (ASIC fees, accountant fees), more complex administration, directors' legal obligations and duties, and the loss of the individual CGT 50% discount (though the small business CGT concessions may be available). A company also cannot access the tax-free threshold personally.
What is the difference between a sole trader and a company in Australia?
A sole trader is the simplest structure — you and your business are the same legal entity, meaning unlimited personal liability for business debts. A Pty Ltd company is a separate legal entity that limits your personal liability, offers tax planning flexibility and is generally more credible for larger contracts, but comes with higher compliance obligations.