Sole Trader vs Company — Which Structure Is Right for You?
A side-by-side comparison of the key differences between operating as a sole trader and registering a company in Australia — tax, liability, compliance, and more.
Sole Trader vs Pty Ltd Company
Based on current Australian tax law and ASIC requirements. Updated July 2026.
| Factor | Sole Trader | Pty Ltd Company |
|---|---|---|
| Tax Rate | Taxed at personal income tax rates (0–45% + 2% Medicare levy) | 26% (base rate entity with turnover < $50m) or 30% flat rate |
| Tax-Free Threshold | $18,200 tax-free threshold applies — beneficial at lower incomes | No tax-free threshold — company pays tax from the first dollar of profit |
| 50% CGT Discount | Available on assets held 12+ months | Not available — companies do not access the 50% CGT discount |
| Asset Protection / Liability | Unlimited personal liability — business debts are your personal debts | Limited liability — shareholders' exposure limited to share capital (with some exceptions) |
| Setup Cost & Complexity | Simple — just an ABN. No ASIC registration required. Low cost. | ASIC registration required (~$597 upfront + annual review fee). More complex. |
| Ongoing Compliance | Lower compliance burden — one tax return, no ASIC obligations | Annual ASIC review, company tax return, minutes & resolutions, potential audit risk |
| Salary / Income Splitting | Cannot split income with family members (ATO may challenge arrangements) | Can pay salaries to directors/shareholders, enabling income splitting strategies |
| Superannuation (as owner) | Super contributions are optional but tax-deductible — good for retirement planning | Must pay super to employee-directors at the SG rate (12%). Also tax-deductible. |
| Business Losses | Can offset losses against other personal income (subject to non-commercial loss rules) | Losses are quarantined within the company — cannot offset against personal income |
| Credibility & Perception | Some larger clients or contracts may prefer dealing with a company | Pty Ltd structure often perceived as more established and professional |
| Selling the Business | Harder to sell — you are the business. Goodwill is harder to transfer. | Easier to sell or bring in investors via share transfer |
| Franking Credits | Not applicable | Can distribute franked dividends to shareholders — tax-efficient for higher earners |
Sole Trader suits you if…
- You're just starting out and want to keep costs low
- Your net profit is under ~$120,000/year
- You want minimal compliance and admin
- Asset protection is less of a concern
- You may sell appreciating assets (50% CGT discount)
Company suits you if…
- Your profit is consistently over $120,000–$180,000
- You want to limit personal liability
- You plan to bring on investors or co-owners
- You want to split income with a spouse or family
- You're building something you plan to sell
Not sure which structure is right for you?
The right answer depends on your specific income, goals, and risk profile. Our accountants can model both scenarios for your situation and give you a clear recommendation.
Book a Free ConsultationDisclaimer
This comparison is provided by Metier 2020 Pty Ltd (trading as The Metier Group) for general information purposes only. It does not constitute financial, taxation, or legal advice. Tax rates, thresholds, and obligations are based on Australian law as at July 2026 and are subject to change. Your optimal business structure depends on your individual circumstances — you should obtain personalised advice from a qualified accountant before making any structural decisions.