Setting Up a Company in Australia: Costs, Tax and When It Is Worth It

A proprietary limited company is the structure Australian businesses graduate into when the numbers get serious — but plenty of people set one up years too early and pay thousands in extra accounting fees for the privilege. Here's what a Pty Ltd actually costs, how company tax really works, how you get money out, and the honest answer on when it's worth it. Still weighing up all four structures? Start with our structure comparison guide.

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 — all in its own name. You wear two hats: director (you run it) and shareholder (you own it), usually both at once in a small company.

That separation is the whole point. The company's debts are the company's problem, not yours — in theory. We'll get to the exceptions, because they matter more than the brochure version suggests.

The trade-off: 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 — each with tax consequences.

What it really costs

Here's the cost picture side by side (as at August 2026):

Cost	Sole trader	Pty Ltd company
Setup	ABN free; business name $47/yr	$636 ASIC registration fee, plus $100–$600 if an agent does it
Annual government fee	Business name renewal $47	ASIC annual review fee $342
Accounting	Tax return, often a few hundred dollars	Typically $1,500–$3,000+ per year
Miss a deadline	—	ASIC late fees: $102 up to a month late, $428 after that

The ASIC fees are indexed every 1 July, so check current figures on asic.gov.au. The accounting line is the one people underestimate: a company needs its own tax return, proper financial statements and ASIC compliance work on top of your personal return. Good accounting software keeps that bill at the lower end, but it never disappears.

Realistically, budget $2,000–$3,500 a year to keep a simple company compliant before it earns you a cent of tax benefit. That number is the hurdle any tax saving has to clear.

How to register a company

The process is genuinely straightforward — most of it is decisions, not paperwork.

1. Get your director ID

Every director needs a director identification number before being appointed — you can apply up to 12 months ahead. It's free, you apply once and keep it for life, and you must apply yourself (your accountant can't do it for you). Apply online at abrs.gov.au using your myID login, with your tax file number and two identity documents handy.

2. Choose a company name

The name must not be identical to an existing registered name — check availability free on ASIC's register. It must end with "Pty Ltd" (or "Proprietary Limited"). You can also skip the name entirely and just use the company's ACN as its name, then trade under a separate registered business name — handy if you run multiple brands under one company.

3. Decide on rules: constitution or replaceable rules

The free option is the replaceable rules in the Corporations Act — fine for most simple companies. A constitution (a custom rulebook, usually a few hundred dollars) is worth it with multiple shareholders, different share classes, or a company acting as an SMSF trustee. A sole director-and-shareholder company needs neither — the Act covers it automatically.

4. Register

Register directly through the government's Business Registration Service at business.gov.au (which handles the ASIC registration plus ABN and tax registrations in one application), or use a private online provider or your accountant, who'll charge a service fee on top of the $636. You'll get an ACN and a certificate of registration, usually the same day.

5. Sort the follow-ons

The company needs its own ABN and TFN, GST registration once turnover hits $75,000, a business bank account in the company's name, and registrations for PAYG withholding and super if it pays wages — including yours.

Company tax: 25% or 30%

Most small companies qualify as a base rate entity and pay a flat 25%: aggregated turnover under $50 million, and no more than 80% of assessable income from passive sources — dividends, interest, rent, net capital gains and the like. Trip either test and the rate is 30%. For a trading business — a cafe, a trade, a consultancy — the passive income test is rarely an issue; it exists to stop people parking investment portfolios in companies for the cheap rate.

Two things the flat rate costs you:

• No 50% CGT discount. Individuals and trusts halve capital gains on assets held over 12 months; companies don't. If your plan involves building and selling valuable assets, this can outweigh years of rate savings.
• No tax-free threshold. A sole trader pays nothing on the first $18,200. A company pays 25% from dollar one.

How you actually get money out

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

Wages

Pay yourself a salary. It's a deductible expense for the company, taxed at your personal marginal rates, with PAYG withholding — and the company must pay 12% super on it, which from 1 July 2026 is due at the same time as the wages, not quarterly. For most owner-operators, a sensible salary is the main way money comes out.

Dividends and franking

Taxed company profits can be paid to shareholders as franked dividends, with franking credits passing the company tax along so profit isn't taxed twice. Say the company earns $100, pays $25 tax and pays you the $75 fully franked: you declare the full $100 with a $25 credit. Above a 25% marginal rate you pay top-up tax; below it, the excess credit offsets other tax or comes back as a refund. Net effect: distributed profit lands at roughly your personal rate. The genuine advantage is timing — retain profit at 25% in growth years, pay dividends in years when your personal income is lower.

The Division 7A trap

What you cannot do is simply borrow or "just 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 needs a written complying agreement at the ATO's benchmark interest rate (check the current rate on ato.gov.au), repaid over at most seven years — 25 if secured against property. If you've been drawing money loosely all year, tell your accountant before 30 June, not after.

Director duties and where limited liability runs out

Being a director is a legal role with teeth: act in good faith, with care and diligence, avoid conflicts, and don't let the company trade while insolvent. The big personal-liability exceptions:

• Insolvent trading. Keep racking up debts when the company can't pay its bills as they fall due, and you can be made personally liable for those debts.
• Director penalty notices. If the company doesn't pay its PAYG withholding, super guarantee or GST, the ATO can issue a director penalty notice making you personally liable for the shortfall. Lodging on time even when you can't pay preserves your options; not lodging can lock in personal liability automatically.
• Personal guarantees. The reality check: banks, landlords and major suppliers know exactly how limited liability works, so they routinely require directors to personally guarantee the company's obligations. Sign one and, for that debt, your limited liability is gone — and for a young company, the lease and the loan are usually personally guaranteed anyway.

Limited liability still earns its keep against the debts you didn't sign for: a lawsuit, a customer injury claim, unsecured trade creditors. Real protection — just narrower than the sales pitch.

Company vs sole trader: the numbers

Tax on business profit for 2026–27, assuming the company retains everything (individual figures include the 2% Medicare levy and ignore small offsets):

Business profit	Sole trader tax	Company tax at 25%	Who's ahead on tax
$50,000	$6,520 (13%)	$12,500	Sole trader, by $5,980
$80,000	$16,120 (20%)	$20,000	Sole trader, by $3,880
$120,000	$28,920 (24%)	$30,000	Sole trader, by $1,080
$200,000	$59,870 (30%)	$50,000	Company, by $9,870

The crossover on retained profit sits around $135,000 — and remember the company also carries $2,000–$3,500 a year in extra running costs, and this comparison only holds for profit you leave in the company. If you need every dollar to live on, dividends or wages push the money back to your marginal rates and the company's tax advantage largely evaporates.

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

Worth it when:

• Profit is comfortably past ~$150,000 and you can genuinely leave a chunk 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 — shares make ownership clean
• Customers or contracts require it (some government and corporate work effectively demands a company)
• You're building something to sell one day

Overkill when:

• You're a low-risk service solo operator earning under $100,000 and spending everything you make
• You'd be paying $2,000+ a year in compliance to save a few hundred in tax — or nothing
• 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 shares

Plenty of successful businesses run as sole traders for years and incorporate when the numbers justify it — a well-worn path with CGT rollover relief available. 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, the ASIC annual review is $342, and total running costs are typically $2,000–$3,500 a year (as at August 2026).
• Most small companies pay a flat 25% tax — but only profit retained in the company stays taxed at 25%; money you take out is taxed at your marginal rates via wages or franked dividends.
• Never treat the company account as your wallet — Division 7A turns undocumented drawings into unfranked dividends at your full marginal rate.
• Limited liability is real but has holes: insolvent trading, director penalty notices for unpaid PAYG, super and GST, and the personal guarantees banks and landlords demand anyway.
• The tax crossover versus a sole trader sits around $135,000–$150,000 of profit, and only if you can retain earnings in the company.
• Get your free director ID from ABRS before registering — every director needs one.

Where to get help

• ASIC — company registration, current fees, annual review obligations
• Australian Business Registry Services — apply for your director ID
• business.gov.au — the Business Registration Service for registering a company, ABN and tax registrations in one go
• ATO — company tax rates, Division 7A rules and benchmark interest rate, director penalty regime
• Tax Practitioners Board — check any tax agent or advisor is registered
• Your accountant — structure decisions are one place where a few hundred dollars of advice before you register beats thousands unwinding the wrong setup later