Setting Up a Company in Australia: Costs, Tax, Pros and Cons

StartingUpdated 18 October 2026·12 min read

By Australian Small Business Guide · How we produce our guides

Setting up a Pty Ltd costs $636 in ASIC registration fees and $342 a year for the annual review (as at 18 October 2026), plus a yearly company tax return. Most small companies pay 25% tax on profit they keep, while money you take out is taxed at your own rates. On 2026-27 rates, a company only beats a sole trader on tax for retained profit above about $142,000.

Plenty of people set up a company years too early and pay extra accounting fees for the privilege. This guide covers what a Pty Ltd is, what it costs, how company tax works, how you get money out, where limited liability stops, and when the structure is worth it. If you're still weighing all four structures, start with our structure comparison. For the full tax arithmetic at several profit levels, see sole trader vs company.

What a Pty Ltd actually is

A proprietary limited (Pty Ltd) company is a separate legal person. It can own assets, sign contracts, borrow money, sue and be sued in its own name. In a small company you usually wear two hats at once: director (you run it) and shareholder (you own it).

That separation is the whole point. In principle the company's debts belong to the company, not to you. The exceptions matter, and they're covered below.

The trade-off is that the company's money is not your money. You can't dip into the business account the way a sole trader can. Every dollar that moves from the company to you has to travel a proper route (wages, dividends or a documented loan), and each route has tax consequences.

What it costs

Government fees as at 18 October 2026, from ASIC's current fee schedule:

Cost Sole trader Pty Ltd company
Registration ABN free $636 ASIC registration (company with share capital)
Director ID Not needed Free, each director applies personally
Business name, if you trade under another name $47 for 1 year or $108 for 3 years Same, unless you trade under the exact company name
Annual government fee Business name renewal only $342 ASIC annual review
Late fees None for the structure $102 within a month, $428 after that
Tax returns Your individual return Company return plus your individual return

ASIC fees aren't subject to GST and are indexed each 1 July. If a provider registers the company for you, its fee sits on top of the $636. Published provider prices in October 2026 ranged from $636 (no service fee) to about $1,003, as our company registration guide shows provider by provider. For a full first-year budget, use our company setup costs guide.

Accounting is the cost people underestimate. A company needs its own tax return, financial statements and ASIC compliance work on top of your personal return. We found no independent survey of these fees, and the published estimates come from firms that sell the service: a Brisbane accounting firm (Y&S Accounting) puts the extra cost at $1,500 to $3,000 a year above a sole trader, while an outsourced finance firm (Scale Suite) quotes $4,000 to $12,000 a year for company accounting and tax (both checked 18 October 2026). The number of transactions, payroll and how tidy your bookkeeping is drive where you land. Ask two or three accountants for a fixed annual quote. That quote plus the $342 ASIC fee is the hurdle any tax saving has to clear.

How to register a company

Most of the work is decisions, not paperwork. Our step-by-step registration guide has the full checklist; here is the short version.

1. Get your director ID

Every director needs a director identification number before being appointed. It's free, you keep it for life, and you must apply yourself: Australian Business Registry Services says no one, including your accountant, can apply on your behalf. Applying online needs a myID with at least Standard identity strength. See our director ID guide.

2. Choose a company name

The name can't be identical to a name already on ASIC's register, and it must end with "Pty Ltd" or "Proprietary Limited". You can also skip a name and use the company's ACN, then trade under a registered business name. That suits owners who run several brands through one company.

3. Decide on rules: constitution or replaceable rules

A proprietary company can use the free replaceable rules in the Corporations Act, its own constitution, or a mix. A constitution is worth having with several shareholders, different share classes, or a company acting as an SMSF trustee. If one person is the sole director and sole shareholder, the replaceable rules don't apply and special rules in the Act cover the basics instead. Many registration providers include a standard constitution in their package.

4. Register

Apply through the government's Business Registration Service at business.gov.au, which can handle the company, ABN, GST, PAYG withholding and business name in one application, or use a private provider or your accountant. business.gov.au says the form takes about 15 minutes and you should get confirmation within 2 business days. You'll receive an ACN and a certificate of registration.

5. Sort the follow-ons

The company needs its own ABN and TFN, a bank account in the company's name, and GST registration within 21 days of GST turnover reaching $75,000. If it pays wages, including yours, it must register for PAYG withholding and pay super guarantee.

Company tax: 25% or 30%

Most small companies are base rate entities and pay a flat 25%. The ATO's tests are aggregated turnover under $50 million and no more than 80% of assessable income from passive sources such as dividends, interest, rent and net capital gains. Fail either test and the rate is 30%. For a trading business such as a cafe, a trade or a consultancy, the passive income test is rarely a problem; it exists to stop people parking investment portfolios in companies for the lower rate. Our guide to the base rate entity test covers the edge cases.

Three things the flat rate doesn't give you:

  • No tax-free threshold. A sole trader pays nothing on the first $18,200. A company pays 25% from the first dollar.
  • No small business income tax offset. Sole traders (and individuals receiving small business income through a partnership or trust) can claim up to $1,000 a year. Companies can't.
  • No 50% CGT discount. Individuals and trusts can currently halve a capital gain on assets held for at least 12 months; companies can't. That comparison is changing: from 1 July 2027, the 50% discount for individuals, trusts and partnerships is replaced by cost base indexation and a 30% minimum tax rate on capital gains, for gains that accrue after that date. The ATO confirms this is now law. If selling valuable assets is part of your plan, get advice on how each structure is taxed under the new rules.

How you actually get money out

This is where company tax gets real. The 25% rate applies to profit left in the company. Once money reaches you personally, your marginal rate applies again.

Wages

You can pay yourself a salary. It's a deductible expense for the company and taxed at your marginal rates through PAYG withholding. The company must also pay 12% super guarantee on your qualifying earnings, and since 1 July 2026 that super is due with each pay run under payday super. For most owner-operators, a sensible salary is the main way money comes out.

Dividends and franking

Taxed company profit can be paid to shareholders as franked dividends. The franking credit passes the company tax through to you, so the same profit isn't taxed twice. If the company earns $100, pays $25 tax and pays you the $75 fully franked, you declare $100 and get a $25 credit. Above a 25% marginal rate you pay top-up tax; below it, the excess credit reduces other tax or comes back as a refund. Distributed profit ends up taxed at roughly your personal rate. The real advantage is timing: keep profit in the company at 25% in growth years and pay dividends in years when your personal income is lower. Our guide to paying yourself as a sole trader or company owner covers the salary and dividend mix.

The Division 7A trap

What you can't do is simply borrow or take company money. Division 7A treats informal loans, payments and forgiven debts to shareholders or their family as unfranked dividends, taxed at your full marginal rate with no credit for the tax the company paid. It's one of the most expensive mistakes new company owners make.

A genuine loan from your company escapes this only if it is repaid, or put on a written complying loan agreement, before the company's tax return lodgment day. The agreement needs interest at least at the ATO benchmark rate (8.77% for 2026-27, checked 18 October 2026), a maximum term of 7 years (25 years if secured by a registered mortgage over real property) and minimum yearly repayments. If you've been drawing money loosely all year, work through our Division 7A review checklist and talk to your accountant before 30 June.

Director duties and where limited liability runs out

Being a director is a legal role with real duties: act in good faith and in the company's best interests, use care and diligence, avoid conflicts, keep proper records and don't let the company trade while insolvent. The big personal-liability exceptions:

  • Insolvent trading. If the company keeps taking on debts it can't pay as they fall due, directors can be made personally liable for those debts.
  • Director penalty notices. If the company doesn't pay its PAYG withholding, GST or super guarantee charge, the ATO can issue a director penalty notice and start recovering the amount from you personally 21 days later. Reporting the unpaid PAYG withholding or GST within 3 months of the due date keeps more options open to have the penalty remitted, even if the company can't pay. A new director also has 30 days from appointment to deal with debts that already exist.
  • Personal guarantees. Banks, landlords and major suppliers know how limited liability works, so they routinely ask directors to guarantee the company's obligations personally. Once you sign, your limited liability is gone for that debt. For a young company, the lease and the loan are usually guaranteed.

Limited liability still protects you against debts you didn't sign for: a customer injury claim, a contract dispute, unsecured trade creditors. The protection is real, but narrower than the sales pitch. Insurance still matters; see our business insurance overview.

Each year you'll also pay the annual review fee, check ASIC's annual statement and pass a solvency resolution. Our annual review checklist walks through it.

Company vs sole trader: the numbers

Total tax on business profit for 2026-27, illustrative. Sole trader figures use the ATO's 2026-27 resident rates, the 2% Medicare levy, the low income tax offset and the small business income tax offset of up to $1,000. They assume no other income, no HELP debt and no PSI. The company is a base rate entity.

Business profit Sole trader Company keeps it all (25%) Company pays it all to you as franked dividends Who's ahead on retained profit
$50,000 $5,387 (10.8%) $12,500 $6,270 Sole trader, by $7,113
$100,000 $21,520 (21.5%) $25,000 $22,520 Sole trader, by $3,480
$150,000 $38,570 (25.7%) $37,500 $39,570 Company, by $1,070
$200,000 $58,870 (29.4%) $50,000 $59,870 Company, by $8,870

How the sole trader column works at $100,000: tax at resident rates is $4,020 plus 30% of $55,000, or $20,520. The small business offset is 16% of that, capped at $1,000. The Medicare levy adds $2,000, for a total of $21,520. At $50,000 the low income tax offset also takes off $250 and the small business offset is $883.

What the table shows:

  • The crossover is about $142,000. That's where a sole trader's average rate, after the $1,000 offset, reaches 25%. Comparisons that put it at $135,000 leave the offsets out, as an earlier version of this page did.
  • "Company keeps it all" is tax deferred, not tax saved. You haven't received any of the money yet.
  • Paying everything out puts the company slightly behind. Dividends are taxed at your marginal rates like sole trader profit but without the small business offset, so the company column ends up $883 to $1,000 above the sole trader.

So the company's tax advantage only exists for profit you can genuinely leave in the business, and it has to beat the ASIC fee plus higher accounting fees every year. If you need every dollar to live on, the advantage largely disappears. Our sole trader vs company guide works through salary-and-super mixes, and what happens when retained profit is paid out later.

When a company is worth it, and when it's overkill

Worth it when:

  • Profit is comfortably past about $150,000 and you can leave a real share of it in the business to reinvest
  • The business carries real risk: employees, premises, products that could hurt someone, big contracts
  • You're bringing in business partners or outside investors, because shares make ownership clear (see shareholders agreements)
  • Customers or contracts require it, as some government and corporate work effectively does
  • You're building something to sell one day

Overkill when:

  • You're a low-risk solo operator earning under about $100,000 and spending everything you make
  • Your income is mainly a reward for your own skills, because the personal services income rules can attribute it back to you
  • The yearly saving would be smaller than the ASIC fee plus the extra accounting
  • Your real goal is splitting income with family, which a company alone doesn't do well. That conversation is about a family trust, often owning the company's shares; see trust vs company

Plenty of successful businesses run as sole traders for years and incorporate when the numbers justify it. The small business restructure roll-over can move active business assets into a new company without an income tax bill if you meet its conditions; our sole trader to company restructure guide explains how. Starting as a company "just in case" mostly buys you accounting fees.

Key takeaways

  • A Pty Ltd is a separate legal entity. Registration costs $636 and the ASIC annual review is $342 a year (as at 18 October 2026), plus a company tax return and higher accounting fees.
  • Most small companies pay a flat 25%, but only profit kept in the company stays at 25%. Money you take out as wages or franked dividends is taxed at your marginal rates.
  • On 2026-27 rates, a sole trader's average tax rate reaches 25% at about $142,000 of profit once the small business income tax offset is counted, so the company only wins on retained profit above that.
  • Never treat the company account as your wallet. Division 7A turns undocumented drawings into unfranked dividends unless they're repaid or put on a complying loan by lodgment day.
  • Limited liability is real but has holes: insolvent trading, director penalty notices for unpaid PAYG withholding, GST and super, and the personal guarantees banks and landlords ask for.
  • Every director needs a free director ID before appointment, and must apply for it personally.

Where to get help

  • ASIC: company registration, current fees and annual review obligations
  • Australian Business Registry Services: apply for your director ID
  • business.gov.au: the Business Registration Service for the company, ABN and tax registrations in one application
  • ATO: company tax obligations, the base rate entity test, Division 7A and the director penalty regime
  • Tax Practitioners Board: check that a tax agent is registered
  • Your accountant: structure is one place where a few hundred dollars of advice before you register beats thousands spent unwinding the wrong setup later

See every step in setting up your business in the business registration hub.

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Frequently asked questions

How much does it cost to set up a Pty Ltd company in Australia?

ASIC charges $636 to register a proprietary company with share capital (as at 18 October 2026); our company setup costs guide adds provider fees, accounting and the other first-year costs to that figure.

How much does it cost to run a company each year in Australia?

The ASIC annual review fee for a proprietary company is $342 (as at 18 October 2026), with late fees of $102 within a month and $428 after that. On top of that you pay for a company tax return and financial statements. Published estimates from accounting firms range from $1,500 to $3,000 a year more than a sole trader pays, up to $4,000 to $12,000 a year for company accounting and tax, so get a fixed quote before you register.

How do you set up a limited company in Australia?

Each director applies for a free director ID with Australian Business Registry Services first. Then choose a name ending in Pty Ltd (or use the ACN), decide between the replaceable rules and a constitution, collect signed consents, and register through the Business Registration Service at business.gov.au, a private provider or your accountant. ASIC usually confirms within 2 business days. The company then needs its own ABN, TFN and bank account, plus GST and PAYG withholding registration where required.

When is a company worth it instead of a sole trader?

On 2026-27 rates, a sole trader who gets the full $1,000 small business income tax offset reaches an average tax rate of 25% at about $142,000 of profit. Below that, profit kept in a company costs more tax than a sole trader pays. Above it, the company saves tax only on profit you leave in the business. A company can also be worth it earlier if the business carries real liability risk, you are bringing in co-owners or investors, or customers require it.

What tax rate does a small company pay in Australia?

A company that is a base rate entity pays 25% on its taxable income. To qualify, aggregated turnover must be under $50 million and no more than 80% of assessable income can be passive income such as rent, interest or dividends. Other companies pay 30%. There is no tax-free threshold, so tax starts on the first dollar of profit. Most trading small businesses pass both tests.

Can I take money out of my company whenever I want?

Not as drawings. Company money belongs to the company, so it has to reach you as wages, franked dividends or a documented loan. If you take money informally, Division 7A can treat it as an unfranked dividend taxed at your full marginal rate. A loan avoids that only if it is repaid or put on a written complying agreement by the company's lodgment day, with interest of at least 8.77% for 2026-27 and minimum yearly repayments.

General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — check the official sources linked in this guide and get qualified advice where your circumstances require it.