Sole Trader vs Company
Compare the tax on your business profit, FY2025–26
Simplified comparison using ATO FY2025–26 individual rates, LITO and the 2% Medicare levy versus the company tax rate. Ignores super, deductions, payroll tax, accounting costs and dividend/franking effects. Not tax advice — speak to a registered tax agent.
Sole trader or company — which is right for you?
This is one of the first big decisions when starting out. A sole trader is the simplest and cheapest structure: you and the business are the same legal entity, and business profit is taxed at your personal marginal rates. A company is a separate legal entity that pays a flat tax rate and limits your personal liability, but costs more to set up and run.
Sole trader — pros and cons
- Pros: cheap and fast to set up, simple tax (one tax return), full control, easy to wind up.
- Cons: unlimited personal liability, profit taxed at marginal rates up to 45%, harder to bring in investors, your name is the business.
Company — pros and cons
- Pros: limited liability, flat 25–30% tax rate, easier to retain and reinvest profit, more credible to some clients, easier to sell or raise capital.
- Cons: setup and annual ASIC fees, more paperwork, separate company tax return, director duties, and profit you draw out is taxed again personally.
A rule of thumb
Many people start as a sole trader for simplicity and switch to a company once profits are consistently high, they need liability protection, or they want to reinvest earnings. The right answer depends on your income, risk and growth plans — and is worth a conversation with an accountant. Official guidance: business.gov.au business structures.
Frequently asked questions
Is a sole trader or company better for tax?
It depends on your profit. At lower profits a sole trader often pays less because of the tax-free threshold and lower marginal rates. At higher profits the flat 25% company rate can be lower — but money you draw out of a company is taxed again personally.
Can I switch from sole trader to company later?
Yes. Many people start as a sole trader for simplicity and move to a company once profits grow, they need liability protection, or they want to reinvest earnings. An accountant can help you transition.
What does a company cost to run?
A company has ASIC registration and annual review fees, more paperwork, and usually higher accounting costs than a sole trader. Weigh these against the benefits of limited liability and tax flexibility.