Sole trader or company is one of the first decisions you make when you go out on your own, and one of the most argued about on job sites. The short answer is that most tradies start as sole traders because it's cheap and simple. Some move to a company later, once profits are higher or the risks of the work justify the cost.
This guide compares the two structures on the things that matter day to day: tax, cost, personal risk, super and paperwork. All figures are for 2026–27 unless we say otherwise, and each one links to the ATO, ASIC or business.gov.au page it comes from. The right answer depends on your numbers, so use this to prepare for a conversation with your accountant, not to replace it.
The quick answer
- Choose a sole trader if you're starting out, working mostly on your own, and expecting a modest profit while you build up the work.
- Consider a company if your profit is consistently high, you want to keep some profit in the business rather than paying it all out, or you want limited liability for a business with real assets and risk.
- Don't choose a company just to "save tax". At moderate profit levels a sole trader often pays less, and a company brings costs and legal duties that don't go away.
Partnerships and trusts are other options, often used by couples and families in business. business.gov.au compares all four structures.
How a sole trader works
As a sole trader, you are the business. business.gov.au describes it as the simplest structure, and one that's relatively easy and inexpensive to set up. The key points from its sole trader page are:
- You use your individual tax file number and lodge one individual tax return that includes your business income.
- You have full control of the business and its assets.
- There are fewer reporting requirements and lower costs than a company.
- A separate business bank account isn't required, though it's recommended.
- You must keep financial records for at least five years.
- You have unlimited liability. Your personal assets are at risk if things go wrong.
- You can't split business profits or losses with family members.
You can employ staff as a sole trader. You'll then have the same obligations as any employer: workers compensation, super and PAYG withholding.
How a company works
A company is a separate legal entity, registered with ASIC under the Corporations Act. It's run by its directors and owned by its shareholders. In a small trade business, that's often the same person. business.gov.au's company page sets out what that means:
- The money the business earns belongs to the company, not to you. You get paid by the company as wages, director's fees or dividends.
- Shareholders have limited liability, but directors can be held personally liable if they breach their duties.
- The company lodges its own tax return and pays company tax.
- Every year the company has an annual review, pays a review fee and passes a solvency resolution.
- Every director must have a director identification number.
- Set-up and running costs are higher, and the paperwork is more complex.
Tax: individual rates vs company rates
This is where most of the confusion lives. A sole trader's profit is added to any other income and taxed at individual marginal rates. A company pays a flat rate on its taxable income. For a company that's a base rate entity, which most small trade companies are, that rate is 25%.
Individual marginal tax rates for 2026–27 vs company tax rates
A sole trader pays the individual rates on business profit (15% to 45% above the $18,200 tax-free threshold); a company pays a flat 25% or 30%.
Show the figures as a table
| Taxable income or entity | Tax rate |
|---|---|
| Individual: $0 – $18,200 | Nil |
| Individual: $18,201 – $45,000 | 15% |
| Individual: $45,001 – $135,000 | 30% |
| Individual: $135,001 – $190,000 | 37% |
| Individual: $190,001 and over | 45% |
| Company: base rate entity | 25% |
| Company: other companies | 30% |
For 2026–27 the bottom individual rate dropped from 16% to 15%, according to the ATO's resident tax rates. The other brackets are unchanged: 30% from $45,001, 37% from $135,001 and 45% from $190,001. The 2% Medicare levy is on top. The ATO's company tax rates for 2025–26 are 25% for base rate entities and 30% for other companies.
A worked example using the ATO rates
Say your business makes a taxable profit of $90,000 in 2026–27 and you have no other income. As a resident sole trader, before any offsets, the sums work like this:
- Nil on the first $18,200.
- 15% of the next $26,800, which is $4,020.
- 30% of the remaining $45,000, which is $13,500.
- That's $17,520 of income tax, plus a $1,800 Medicare levy: $19,320 in total.
That's about 21.5% of the profit. The same $90,000 in a base rate entity company would pay $22,500 in company tax. On top of that, any of it you take out as wages or dividends is taxed again in your hands, with credit for the company tax already paid.
The point isn't that one structure always wins. It's that the flat 25% rate only beats individual rates once your profit pushes well into the higher brackets, and the company's extra costs eat into the gap. Your accountant can model your actual numbers, including offsets, super and how you'd pay yourself.
Personal services income
Many tradies earn most of their income from their own labour. The ATO calls income that comes mainly (more than 50%) from your personal skills or effort personal services income (PSI). If the PSI rules apply, they change how that income is reported and what deductions you can claim. Where the rules apply to income earned through a company, that income is generally treated as yours for tax anyway.
Whether the rules apply depends on tests about how you work: for example, whether you have several clients, employ others or supply tools and materials. Have your accountant check this before you set up a company to "save tax".
Costs, liability and paperwork compared
Sole trader vs company at a glance
The main practical differences between the two structures.
| Sole trader | Company | |
|---|---|---|
| Legal entity | You and the business are the same | A separate legal entity, run by directors and owned by shareholders |
| Liability | Unlimited: your personal assets are at risk | Limited for shareholders, but directors can be personally liable if they breach their duties |
| Tax | Profit is taxed at your individual rates, using your own TFN | The company pays company tax (25% or 30%) and lodges its own return |
| Set-up cost | ABN is free; business name $47 a year if you use one | $636 to register, plus a $342 annual review fee |
| Paperwork | Fewer reporting requirements | Corporations Act duties, annual review, solvency resolution, director ID |
| Super for you | Optional: you choose whether to pay yourself super | If the company pays you wages as an employee, super guarantee applies |
The ASIC fees from 1 July 2026, published by business.gov.au, are $636 to register a company and $342 a year for a proprietary company's annual review. An ABN is free, and a business name costs $47 a year if you trade under a name other than your own. Accounting fees for a company are usually higher too, because there's an extra tax return and a set of company accounts each year.
Limited liability is the other big drawcard, but it's narrower than many people think. Directors can be personally liable when they breach their duties, and banks and suppliers often ask directors for personal guarantees. Your insurance, especially public liability, still does most of the heavy lifting when something goes wrong on site.
Super and paying yourself
As a sole trader, paying super for yourself is optional. business.gov.au points out it's still a good idea to plan for retirement. You can make personal contributions and, if you give your fund a notice of intent first, claim a tax deduction for them within the contributions caps.
If your company pays you a wage as an employee, the company must pay you super guarantee at 12% of qualifying earnings like any other employee. Under Payday Super, which started on 1 July 2026, the super must reach the fund within 7 business days of payday.
A few other differences worth knowing
There are a few other differences between the structures:
- GST is the same. Either structure must register once GST turnover reaches $75,000.
- Losses work differently. A sole trader may be able to offset a business loss against other income, subject to the non-commercial loss rules. A company keeps its losses in the company. From 1 July 2026, business.gov.au reports, eligible companies can again carry a loss back against tax paid in the previous two income years and get a refund.
- Licences can be held differently. Some state licensing schemes license companies separately from individuals, and some need a nominated supervisor. Check with your regulator before you switch structures.
- Switching later is possible, but it's a new entity. The company needs its own ABN and tax file number, and contracts, insurance, licences and bank accounts may need to move across. Moving assets such as vehicles and equipment into the company can have tax consequences, so plan it with your accountant.
Making the decision
Before you meet your accountant, answer these questions:
- What profit do you realistically expect this year and next?
- Will you leave money in the business, or draw it all out to live on?
- What's the worst thing that could go wrong on your jobs, and does your insurance cover it?
- Do you, or will you, employ staff or use subcontractors?
- Does your licence or the work you want, such as commercial contracts, favour one structure?
Whichever you choose, the day-to-day work is the same: quoting, invoicing, tracking jobs and keeping records for the ATO. Tradie Business handles quotes and tax invoices with GST for sole traders and companies alike. When you're ready to price your first jobs, read how to quote a job, or go back to the trade business setup checklist.
