Decision guide
Sole trader, company or trust?
The same $150,000 profit produces very different tax outcomes depending on the vehicle. Here's the comparison at real profit levels, with the costs and trade-offs stated.
Which business structure is best in Australia?
There's no universal answer, but there are reliable patterns. Sole trader while profits are modest and risk is low — cheapest to run, no asset protection, taxed at your marginal rate. Company once profits exceed what you draw, or liability matters, or partners and investors are involved — 25% or 30% on retained profits, real separation of liability, Division 7A on withdrawals. Discretionary trust where income should be distributed flexibly among family members and asset protection matters — but it can't retain profits efficiently. Trust plus company is common for established family businesses.
- Sole trader: taxed at personal marginal rates
- Company: 25% or 30% on retained profits
- Trust: distributes annually, must resolve by 30 June
- Compliance cost: $0 vs ~$2–4k vs ~$3–5k per year
Side by side
The comparison, honestly.
| Sole trader | Company | Discretionary trust | |
|---|---|---|---|
| Tax on profit | Your marginal rate, up to 45% + Medicare | 25% (base rate) or 30% on retained profits | Taxed in beneficiaries' hands at their rates |
| Asset protection | None — you are the business | Strong for trading liabilities | Strong, with a corporate trustee |
| Income splitting | No | Via wages and dividends to shareholders | Yes — flexible annual distributions |
| Retaining profits | N/A — taxed to you regardless | Efficient at 25–30% | Inefficient — undistributed income taxed at top rate |
| Setup cost | Free (ABN only) | From $1,450 | From $2,200 with corporate trustee |
| Annual compliance | Return only, from $350 | $2,000–$4,000 incl. ASIC and statements | $3,000–$5,000 incl. resolutions |
| Getting money out | Simply draw it | Wages, dividends, or Division 7A loans | Distributions per the deed |
| Losses | Offset against other income (subject to rules) | Carried forward in the company | Trapped in the trust |
| Selling the business | Asset sale; small business CGT concessions may apply | Share or asset sale; buyers prefer companies | More complex; depends on what's held |
| Best suited to | Side businesses, low-risk services, early stage | Growing businesses, partners, investors, higher risk | Family businesses, investment holdings |
Worked comparison
What it looks like at $150,000 profit.
A single operator with $150,000 of business profit who needs $90,000 to live on. Illustrative only — actual outcomes depend on rates, offsets and your full circumstances.
Sole trader
All $150,000 is assessable to you this year at marginal rates, whether you spend it or not. Simple, no structure cost — but no ability to defer tax on the $60,000 you didn't need.
Best when profit and drawings are roughly the same number.
Company
Pay yourself $90,000 as wages (taxed to you), leave $60,000 in the company taxed at 25%. The deferral is real, and the retained funds can buy equipment or fund growth. Later distributions carry franking credits, so it's deferral rather than avoidance.
Best when you retain profits or carry real liability risk.
Trust
Distribute $90,000 to you and, where genuinely appropriate, part of the balance to a lower-income adult beneficiary — or to a corporate beneficiary taxed at 30%. Flexible, but everything must be distributed and resolved before 30 June.
Best with a genuine family group and asset-protection needs.
Note the anti-avoidance context: distributions to family members who never receive the benefit attract ATO attention, and personal services income rules can override the structure entirely. Structures must reflect reality.
FAQ
Common structure questions.
At what profit should I move from sole trader to company?
The arithmetic usually favours a company once profits consistently exceed what you need to draw and live on, because retained profits are taxed at 25% or 30% instead of your marginal rate (up to 45% plus Medicare). But tax rate isn't the only driver — liability exposure, client requirements, and bringing in partners often matter more. We model your actual figures, including the extra $2,000–$4,000 a year in compliance.
Is a trust better than a company?
They do different jobs. A trust distributes income flexibly among beneficiaries each year and offers asset protection, but can't retain profits efficiently and needs resolutions before 30 June. A company retains profits cheaply and is what investors expect, but Division 7A governs getting money out. Many established family businesses run both — a trust holding shares in a trading company.
Can I change structure later?
Yes, and CGT rollovers — including the small business restructure rollover — can defer the tax on eligible transfers. But stamp duty, contract novation, licence transfers and loan re-documentation all cost money and time. It's cheaper to get it approximately right at the start than perfectly right later.
Does a company protect my personal assets?
Substantially, but not absolutely. A company is a separate legal entity, so trading liabilities generally stop with it. Directors remain personally exposed for unpaid PAYG withholding, GST and super (director penalty notices), for personal guarantees they've signed, for insolvent trading, and for their own negligence. Structure is one layer; insurance is another.
What about a partnership?
Cheap and simple, and appropriate for some professional and family arrangements — but each partner is jointly and severally liable for the whole partnership's debts, including those incurred by the other partner. For most trading businesses with unrelated partners, a company with a shareholder agreement is safer.
I'm a contractor — will a company reduce my tax?
Often not. If the personal services income rules apply and you're not a personal services business, income is attributed to you personally regardless of the entity, and deductions are restricted. Interposing a company adds cost without benefit in that case. This is the first thing to test, not the last.
Ready when you are
Get it modelled on your numbers.
A structure consultation is $650 and starts with a free 15-minute call to see whether you need one at all.