When you’re starting or growing a business, choosing the right structure is critical—especially when it comes to tax. Two of the most common options are operating as a sole trader or setting up a company. Each structure has its pros and cons, and the best fit depends on your income, risk appetite, and long-term business goals.
This article breaks down the key differences in the sole trader vs company Australia tax debate so you can make a confident decision.
1. Income Tax Rates
Sole Trader:
- You’re taxed as an individual, using Australia’s marginal tax rates.
- As of FY2024–25, tax rates range from 0% to 45%, plus Medicare Levy.
- Your business income is declared on your personal tax return.
Company:
- A company pays a flat tax rate of 25% (if a base rate entity with turnover under $50M).
- You’re only taxed personally when you draw income (e.g., salary or dividends).owner/director) are taxed personally only when you take money out (e.g., salary, dividends).
💡 In the sole trader vs company Australia tax comparison, a company may be more tax-efficient if you’re generating higher profits that don’t need to be withdrawn immediately.
2. Tax Deductions and Flexibility
Sole Trader:
- Can claim work-related deductions such as tools, internet, and home office use.
- May offset losses against other personal income, subject to non-commercial loss rules.
Company:
- Also claims business expenses, but must keep clear business records and financials.
- Can retain earnings and reinvest profits at the lower company tax rate.
3. Superannuation Contributions
Sole Trader:
- You’re responsible for making voluntary contributions to your super fund.
- You may claim a deduction for personal concessional contributions (within annual caps).
Company:
- Must pay the Superannuation Guarantee (11%) for employees, including yourself if you’re on the payroll.
- Allows structured retirement planning and super strategies.
4. Legal Liability and Risk
Sole Trader:
- A separate legal entity—your personal liability is limited.
- You may still be personally liable for certain director responsibilities..
Company:
- A separate legal entity, which limits your personal liability (except for directors’ duties, personal guarantees, etc.).
- Offers more protection, which can be important for higher-risk industries.
5. Administration and Costs
Sole Trader:
- Simple and low-cost to set up: just register an ABN.
- Minimal compliance and reporting obligations.
Company:
- More complex: requires ASIC registration, annual review fees, and separate tax filings.
- Greater bookkeeping and regulatory requirements.
6. Taking Money Out of the Business
Sole Trader:
- You can take profits directly as personal income.
- No need to distinguish between personal and business funds (though it’s still good practice).
Company:
- Money belongs to the company.
- You need to pay yourself through a salary, director’s fee, or dividends, all with different tax treatments.
| Scenario | Best Fit |
|---|---|
| You’re just starting, with low risk and income | Sole Trader |
| You want simple admin and full control | Sole Trader |
| You’re growing, with consistent high profits | Company |
| You want asset protection and long-term scaling | Company |
| You plan to raise capital or bring in shareholders | Company |
When comparing sole trader vs company Australia tax obligations, it’s clear that the right choice depends on your business size, structure, income goals, and growth plans.
Final Thoughts
There’s no universal answer. Many business owners begin as sole traders and switch to a company structure later. A well-timed move can lead to tax savings, better asset protection, and scalability.
Need help deciding? Speak with a registered tax agent or business advisor to get tailored advice based on your financial situation.
