The business structure you choose on day one shapes how much tax you pay, how much of your personal wealth is at risk, and how hard it is to grow. Most Australian business owners make this decision quickly — often without fully understanding what they’re signing up for.
Get it wrong and restructuring later costs time, money, and sometimes triggers tax consequences you didn’t see coming. This guide breaks down the real differences between a sole trader and a Pty Ltd company so you can make the call with confidence.
What Is a Sole Trader?
A sole trader is Australia’s simplest business structure. You and your business are legally the same entity — there is no separation between your personal finances and your business activities. You register an ABN, start trading, and declare business income on your personal tax return each financial year.
It is the fastest and cheapest way to get started. There are no ASIC registration requirements, no company constitution to draft, and no directors to appoint.
For freelancers, tradies, and early-stage operators testing a business idea in Western Australia and across the country, this simplicity is genuinely valuable.
For a full breakdown of obligations, pros, and cons, see our guide on what is a sole trader.
What Is a Pty Ltd Company?
A Pty Ltd (Proprietary Limited) company is a separate legal entity registered with ASIC. It can own assets, enter contracts, employ staff, and be sued — independently of its directors and shareholders.
The company lodges its own tax return at the corporate tax rate, and profits are separated from the personal finances of the people who own and run it.
This legal separation is the defining feature of a company. It is what creates the liability protection that a sole trader structure simply cannot offer.
There are several other company types available beyond Pty Ltd — including public companies and companies limited by guarantee. For the full picture, see our guide on types of companies in Australia.
Sole Trader vs Company: Side-by-Side Comparison
Here’s how the two structures compare across the factors that matter most to Australian small business owners:
| Factor | Sole Trader | Pty Ltd Company |
| Tax Rate | Personal marginal rates — up to 45% | 25% flat (base rate entities) |
| Personal Liability | Unlimited — personal assets at risk | Limited to company assets |
| Setup Cost | Free — ABN only | $611 ASIC fee + professional costs |
| Annual Obligations | Personal tax return only | ASIC review fee ($329) + company tax return |
| Hiring Staff | Possible but less structured | Cleaner — separate employer entity |
| Raising Capital | Difficult | Easier — issue shares to investors |
| Asset Protection | None | Strong — personal assets separated |
| Perceived Credibility | Moderate | Higher — established legal entity |
Tax: Where the Numbers Really Diverge
As a sole trader, your business income is added to any other income you earn and taxed at your personal marginal rate. According to the ATO’s current resident tax rates, for the 2025–26 financial year those rates are:
- $0 – $18,200: Nil (tax-free threshold)
- $18,201 – $45,000: 16%
- $45,001 – $135,000: 30%
- $135,001 – $190,000: 37%
- $190,001+: 45%
Add the Medicare Levy of 2% on top for most taxpayers. Once your net business profit exceeds $45,000, you’re paying 30 cents in the dollar on every additional dollar earned — and that climbs steeply from there.
A Pty Ltd company pays a flat 25% corporate tax rate on its profits, provided its aggregated annual turnover is under $50 million.
For a business generating $150,000 in net profit, that’s a meaningful difference — the company pays $37,500 in tax while a sole trader on that income alone would pay considerably more, before Medicare Levy.
A company structure also opens planning opportunities that a sole trader cannot access: paying yourself a salary (deductible to the company), retaining profits in the company at the lower rate, and distributing franked dividends to shareholders.
These strategies compound over time and are a core reason why growing Australian businesses incorporate.
Liability: Where the Real Risk Sits
As a sole trader, you are personally liable for every business debt, contract dispute, and legal claim. If a client sues your business, or a supplier goes unpaid, your personal bank account, home, and vehicle are all exposed. There is no legal shield between you and the business — they are the same entity.
A Pty Ltd company limits that exposure. The company is a separate legal person. It can be sued, but in most circumstances, the directors’ personal assets are protected.
That protection is not absolute — directors can still be held personally liable in cases of insolvent trading, fraud, or breaches of their statutory duties — but for the vast majority of day-to-day business risks, the separation is real and significant.
In industries where professional liability claims, contract disputes, or property damage are common, this distinction can be the single most important factor in your structure decision.
We regularly see Perth business owners transition to a company structure specifically when they take on larger contracts or hire their first employees — because that’s when the risk profile changes.
Setup and Ongoing Costs
Setting up as a sole trader costs nothing beyond your time. An ABN is free to register through the Australian Business Register, and there are no annual government fees to maintain the structure.
Registering a Pty Ltd company involves a one-off ASIC registration fee of $611 (from 1 July 2025), plus an annual review fee of $329 to keep the company registered each year.
You’ll also typically have professional costs for setting up the company constitution, shareholder agreements, and any associated structures like a trust.
Those costs are real — but they need to be weighed against the tax savings and liability protection a company structure provides as revenue grows.
A business generating $200,000 in net profit could be saving tens of thousands annually in tax through a company structure. The setup costs pay for themselves quickly at that scale.
For a full step-by-step walkthrough of what company registration involves, see our guide on how to register a company in Australia.
When a Sole Trader Structure Makes Sense
A sole trader is the right call when:
- You’re testing a business idea and not yet generating consistent revenue
- Your net profit is low enough that personal marginal rates don’t significantly outpace the company rate
- Your work carries minimal risk of legal claims, large debts, or contract disputes
- You want to keep administration as simple as possible while you find your feet
- You’re operating as a contractor or freelancer alongside other employment income
Many successful businesses started as sole traders and incorporated once revenue and risk justified the move. That transition is straightforward with proper planning, and a good tax advisor will tell you when the numbers make it worth doing.
When a Company Structure Makes Sense
A Pty Ltd company becomes the better choice when:
- Your net profit consistently exceeds $100,000 and the tax rate difference becomes material
- You’re taking on contracts, clients, or projects that carry meaningful financial or legal risk
- You want to bring in a business partner, investor, or outside equity
- You’re building a brand or business you intend to sell or scale significantly
- You’re hiring employees and want formal separation between yourself and the employer entity
- You want to retain profits in the business at the lower 25% rate for future reinvestment
The $100,000 threshold is a guide, not a rule. The right time to incorporate depends on your industry, full personal tax position, risk exposure, and long-term goals. These are exactly the conversations our team at KSH Tax has with business owners across WA every week — because the right answer depends on the full picture, not just one number.
Moving From Sole Trader to Company: What’s Involved
Transitioning from a sole trader to a Pty Ltd company is more common than most business owners realise — and more straightforward than many expect.
The key steps involve registering the new company with ASIC, transferring contracts and assets, updating your ABN and GST registration, and notifying clients and suppliers of the change in trading entity.
The tax implications of the transition — particularly around CGT on any asset transfers — depend on your specific situation and can often be managed or minimised with proper planning. This is where engaging a registered tax agent before you make the move pays for itself.
What About Partnerships and Trusts?
If you’re going into business with someone else, a partnership may also be worth considering — but it carries its own tax and liability implications that are distinct from both sole trader and company structures. We cover this in detail in our sole trader vs partnership guide.
For businesses with significant assets or family wealth planning needs, a family trust — often combined with a corporate trustee — can offer additional flexibility and tax advantages beyond what a company alone provides. Our trust vs company guide covers the comparison in full.
ABN and ACN: What You’ll Need Either Way
Regardless of which structure you choose, you’ll need an ABN. If you register a company, you’ll also receive an ACN — a separate identifier issued by ASIC that’s specific to the company entity.
The two numbers are frequently confused, and getting them wrong on contracts and invoices creates compliance headaches. Our ABN vs ACN guide explains the difference clearly.
Frequently Asked Questions
Is a sole trader cheaper than a company to run in Australia?
Yes — in the short term. A sole trader has no ASIC fees, no annual review costs, and simpler tax obligations. But ‘cheaper to run’ doesn’t mean better financially. A company’s 25% flat tax rate typically generates significant savings once net profit exceeds $100,000. At that level, the annual ASIC review fee of $329 is a rounding error compared to the tax benefit.
Can a sole trader become a Pty Ltd company later?
Yes. Transitioning from a sole trader to a company is common and straightforward with professional guidance. It involves registering a new company with ASIC, transferring the business’s contracts and assets, and updating tax registrations.
CGT and stamp duty implications depend on what assets are involved — both of which can often be minimised with planning done before the transition, not after.
Do sole traders pay more tax than companies in Australia?
At higher income levels, yes — often significantly more. The company tax rate is a flat 25% for most small businesses. Sole traders pay at personal marginal rates that reach 30% above $45,000, 37% above $135,000, and 45% above $190,000 — all before the Medicare Levy.
The crossover point where a company saves more than it costs to run varies by situation, but is typically around $80,000–$100,000 in net profit for most business owners.
What is the main difference between a sole trader and a company in Australia?
The two most important differences are legal separation and tax. A sole trader and their business are the same legal entity — meaning the owner has unlimited personal liability and pays tax at personal marginal rates.
A Pty Ltd company is a separate legal person with its own tax obligations, a flat 25% corporate tax rate, and limited liability that protects the owners’ personal assets in most circumstances.
| Not sure which structure suits your business? |
