Sole Trader to Company: How and When to Restructure
You move from sole trader to company by registering a new Pty Ltd with ASIC, giving it its own ABN and TFN, transferring the business's assets, contracts, staff and registrations across, then cancelling your sole trader ABN — and the right time is usually when profit is reliably above about $135,000 and you can leave some of it in the business, or when risk, partners or a major contract force the issue. Done properly, with the small business restructure rollover, the switch costs a few thousand dollars and triggers no tax on the transfer itself. Done badly, it triggers capital gains tax, opens an insurance gap and leaves you with a year of messy books.
When a company is worth the switch
The tax signal
A small company pays a flat 25% on its profit (as a "base rate entity" — aggregated turnover under $50 million with no more than 80% passive income). As a sole trader you pay individual marginal rates instead: for 2026-27, nothing on the first $18,200, then 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above that, plus the 2% Medicare levy for most people.
Run those numbers and your average rate reaches 25% at roughly $135,000 of taxable income. Above that, every extra dollar is taxed at 39% (or 47% past $190,000), so each dollar of profit you can leave in a company saves 14–22 cents.
The catch is the word leave. The 25% rate only applies to profit retained in the company. Pay it out as wages or franked dividends and it lands back at your marginal rate — the franking credit stops double taxation, but it doesn't make the saving permanent. That's why the practical threshold is "profit reliably above $135,000–$150,000 and you're living on less than you earn". A year-by-year comparison is in our company structure guide, and the wages-versus-dividends mechanics are covered in paying yourself as a sole trader vs company.
The risk signal
As a sole trader, a contract dispute, a workplace injury claim or a product that hurts someone lands on you personally — your house, your savings, your car. A company's debts are generally the company's, not yours (with exceptions: personal guarantees, unpaid PAYG withholding and super, and trading while insolvent). If the business is taking on jobs where a single failure could exceed your insurance, the risk signal can justify a company well before the tax signal does.
Partners, investors and contracts
You can't sell shares in yourself. The moment you want a business partner with equity, an outside investor or an employee share plan, a company is the only clean way to do it. Some corporate procurement teams and government tenders also effectively require you to contract through a company, and a business you plan to sell one day is easier to sell as shares.
When it's not worth it
- You're a one-person contractor. If your income is mainly a reward for your personal skills or effort — the ATO's personal services income (PSI) rules — routing it through a company won't cut your tax. The ATO attributes the income back to you unless you pass its PSI tests, and you've added a layer of compliance for nothing.
- Profit is under about $100,000 and you spend all of it. You'd pay $2,000–$4,000 a year in company compliance to save little or nothing.
- Your real goal is splitting income with family. A company alone doesn't do that well; that conversation is about a family trust, often as the shareholder of the company.
The restructure, step by step
Order matters. Set the company up, move everything into it, start trading through it, then shut down the sole trader side.
1. Get the plan and the advice first
List every asset the business owns — goodwill, equipment, vehicles, stock, the domain name, trademarks, the customer list — and every contract, lease, licence and policy in your name. Your accountant uses this to work out whether the rollover applies (more on that below), what needs a written transfer agreement and what values to use. Do this before you register anything.
2. Get your director ID
Every director must hold a director identification number before being appointed. It's free, you apply once at abrs.gov.au using your myID login, and you have to do it yourself — your accountant can't apply for you.
3. Register the company
Register the Pty Ltd through the Business Registration Service at business.gov.au or via your accountant. The ASIC registration fee is $636 (as at September 2026), you'll receive an ACN, and a sole director-and-shareholder company can usually run on the Corporations Act's free replaceable rules rather than a paid constitution. The full cost breakdown is in how much it costs to set up a company.
4. New ABN, TFN and tax registrations
The company can't inherit your ABN or TFN. Apply for its own through the Australian Business Register (the Business Registration Service can bundle this with the company registration), register for GST once turnover is expected to hit $75,000 — in practice, from day one if the sole trader business was already registered — and register for PAYG withholding if the company will pay wages, including yours.
5. Bank accounts, merchant facilities and software
Open accounts in the company's name and move direct debits, card terminals and payment gateways across. Start a fresh Xero or MYOB file for the company rather than continuing the sole trader one; mixing two entities in one set of books is the single biggest cause of restructure headaches at tax time.
6. Transfer the business name
If you trade under a registered business name, you transfer it through ASIC Connect: as the current holder you request a transfer and receive a transfer number, valid for four months and 28 days, which the company uses to register the name under its ABN. The remaining period on your registration isn't refunded or carried over — the company pays a fresh registration fee of $47 for one year or $108 for three (as at September 2026).
7. Move the assets — with paperwork
Assets change legal owner, so document it: a short business transfer agreement listing what's transferred and at what value, then the practical follow-through — vehicle registrations changed with your state transport authority, the domain name moved to the company's registrant details, trademarks assigned through IP Australia, equipment and stock recorded in the company's books.
8. Contracts, leases and licences
Nothing you signed as a sole trader transfers automatically. Client and supplier contracts need to be assigned or novated to the company (a novation replaces you with the company and needs the other party's signature). Your lease needs the landlord's written consent to assign, and expect them to ask for a personal guarantee. Industry licences — building, electrical, liquor, food, transport — are frequently issued to a specific entity, so the company may need its own licence before it can legally do the work. Check every licence with the issuing regulator before your switch date.
9. Insurance
Your sole trader policies cover you, not the company. Arrange public liability, professional indemnity, workers compensation and any asset cover in the company's name from the day it starts trading, then cancel the old policies once nothing is still running under your name. A claim lodged by the wrong entity is a claim that gets denied.
10. Employees
Staff move to the company as their new employer. Because your company is an "associated entity" of you, their service is treated as continuous under the Fair Work Act — annual leave, personal leave and length of service carry across, and the switch can't be used to reset entitlements. Give each employee a letter confirming the transfer date and continuity, collect their super fund details and TFN declarations for the new employer, finalise Single Touch Payroll for the sole trader employer, and start reporting under the company's ABN. The company must pay the 12% super guarantee on wages, including on any salary it pays you.
11. Tell everyone, then cancel the old ABN
Update invoices, quotes, your website and email signature with the company name, ABN and ACN, and notify customers and suppliers in writing. Lodge the final sole trader activity statement and keep the business schedule in your personal tax return for the part-year you traded. Only then cancel the sole trader ABN (the ATO expects this within 28 days of ceasing) — cancelling it also cancels your GST registration, which is why the company's own registrations must already be in place.
The tax side: rollover, GST and stamp duty
Transferring goodwill, equipment and stock into the company is a disposal in the ATO's eyes, and without relief it would be taxed as if you'd sold the business at market value.
Small business restructure rollover
The small business restructure rollover in Subdivision 328-G of the tax law is built for exactly this move. If your aggregated turnover is under $10 million, the transfer is a genuine restructure of an ongoing business, there's no change in ultimate economic ownership of the assets (you owned the business; you must own the company's shares in the same proportion), the assets are active assets — CGT assets, depreciating assets, trading stock or revenue assets — and everyone involved is an Australian resident, you can choose the rollover. The assets move at their existing cost or written-down value, no CGT or income tax arises on the transfer, and pre-CGT assets keep their pre-CGT status.
Two points to flag for your accountant. First, the "ultimate economic ownership" test is where plans to put a family trust in as shareholder usually fall over — the rollover generally requires the same people to own the assets afterwards. Second, the rollover is a choice with its own paperwork and valuations, and the ATO's genuine-restructure test looks at commercial purpose, not tax savings, so document why you're doing it. If the rollover doesn't fit, there's an older CGT rollover for an individual transferring assets to a wholly owned company, and a separate set of small business CGT concessions — your accountant will pick the right tool.
Tax losses, by the way, stay with you. Losses you made as a sole trader are personal and don't move into the company.
GST and state stamp duty
The rollover deals with income tax only. GST is a separate question: the transfer of a whole business between two GST-registered entities can often be treated as a GST-free supply of a going concern if there's a written agreement, but the conditions have to be met, not assumed.
Stamp duty depends on your state. NSW abolished transfer duty on most non-land business assets — goodwill, IP, plant and equipment — from 1 July 2016. Queensland still charges duty on business assets but offers a small business restructure exemption for eligible transfers from a sole trader to a company (broadly, annual turnover under $5 million and business assets with an unencumbered value of $10 million or less, among other conditions — confirm the current tests with the Queensland Revenue Office). Other states have their own rules, and any real property or long lease moving across can attract duty anywhere. Check with your state revenue office before signing the transfer agreement.
What it costs
| Item | Cost (as at September 2026) |
|---|---|
| Director ID | Free |
| ASIC company registration | $636 |
| Company ABN, TFN, GST, PAYG withholding registration | Free |
| Business name re-registered to the company | $47 (1 year) or $108 (3 years) |
| Accountant: plain company setup | Typically $1,500–$3,000 |
| Accountant/lawyer: restructure advice, rollover documentation, novation deeds | Quoted per job; expect more than a plain setup |
| State transfer duty | Nil in NSW for non-land assets; varies elsewhere |
| ASIC annual review fee (ongoing) | $342 a year, late fees $102 or $428 |
| Company tax return and accounts (ongoing) | Typically $1,500–$4,000 a year |
The ongoing line is the one to take seriously. The company needs to save you more than its compliance costs every year, not just the year you set it up.
Timing: why 1 July is the clean date
Switching on 1 July gives each entity a full financial year: one final sole trader business schedule for the old year, one clean company year with no apportioned depreciation, no split payroll and no mid-quarter GST juggling. Stocktake at 30 June doubles as your transfer inventory, and Single Touch Payroll finalisation for the old employer falls on its normal date.
Work backwards from there. Register the company in May or June so the ABN, bank accounts and software are ready, but don't start trading through it until 1 July. Start the director ID, licence applications and landlord conversations earlier still — a licence or lease consent that arrives in August leaves you trading unlicensed or in breach.
The exception is a hard deadline that won't wait: a contract that must be signed by a company, an investor ready to put money in, or a risk event that's already happened. In those cases restructure now and accept a messier part-year — the cost of a split year is accounting fees, while the cost of missing the contract is the contract.
Common mistakes
- Cancelling the sole trader ABN too early. Do it last, after the company is invoicing and the final lodgements are in.
- Assuming contracts and leases follow the business. They don't. Every one needs a novation, assignment or new agreement.
- Trading with no insurance in the company's name. The policy that covered you doesn't cover the Pty Ltd.
- Skipping the rollover paperwork. The rollover is a choice you make with documentation, valuations and a written transfer agreement. Without it, you've made a taxable sale to yourself.
- Forgetting the licences. Trade, food, liquor and transport licences are usually entity-specific and can take weeks to reissue.
- Treating the company's money as yours. Undocumented drawings become unfranked dividends under Division 7A, taxed at your full marginal rate. Set a salary and pay it through payroll.
- Incorporating a personal services business. If PSI rules apply, the company changes your compliance load, not your tax.
- Running both entities in one accounting file. Start the company clean.
Key takeaways
- A company pays 25% on retained profit; a sole trader's average rate crosses 25% at about $135,000 (2026-27), so the tax case only works when profit is reliably above that and you can leave some in the business.
- Liability risk, business partners, investors and big-customer requirements can justify a company well before the tax numbers do.
- The company needs its own ACN, ABN, TFN, GST and PAYG registrations, bank accounts, insurance and licences — nothing transfers automatically, including your contracts and lease.
- The small business restructure rollover can move goodwill, equipment and stock into the company with no CGT or income tax on the transfer, but only if you meet the genuine-restructure and unchanged-ownership tests and choose it properly.
- Employees carry their service and leave balances across because your company is an associated entity of you.
- Aim for 1 July, start the paperwork in autumn, and cancel the sole trader ABN last.
Where to get help
- business.gov.au — the Business Registration Service and a step-by-step outline of changing a sole trader business to a company
- ASIC — company registration, current fees and business name transfers
- Australian Business Registry Services — apply for your director ID
- ATO — changing your business structure, the small business restructure rollover, PSI rules and cancelling an ABN
- Fair Work Ombudsman — employee entitlements when a business transfers to a new employer
- Your state revenue office — transfer duty rules and any restructure exemption in your state
- Your accountant and a commercial lawyer — the rollover election, asset valuations, novation deeds and lease assignments are where restructures go right or wrong; see how to choose an accountant or BAS agent if you don't have one yet
Frequently asked questions
When should I change from sole trader to company?
The tax case starts to stack up once profit is reliably above about $135,000 and you can leave a decent share of it in the business — that's where a sole trader's average tax rate passes the 25% small company rate (2026-27 rates). Change earlier if the business carries real liability risk, you're bringing in a partner or investor, or a major customer or tender requires a company.
Can I change my ABN from sole trader to company?
No. An ABN belongs to the entity that holds it, so your sole trader ABN can't be converted or transferred. The company gets its own ABN and TFN once it has an ACN, and you cancel the sole trader ABN after the business has fully moved across and your final lodgements are done.
How much does it cost to change from sole trader to company?
ASIC's company registration fee is $636 and the annual review fee is $342 (as at September 2026); the director ID, ABN, TFN and GST registration are free. Add roughly $1,500–$3,000 for an accountant to set the company up, and more for the restructure advice, rollover paperwork and any contract novations — plus $1,500–$4,000 a year in ongoing company accounting.
Do I pay capital gains tax when I move my business into a company?
Not if you qualify for the small business restructure rollover. Moving goodwill, equipment and stock into your company is technically a disposal at market value, but the rollover lets eligible small businesses (aggregated turnover under $10 million) transfer active assets at cost with no CGT or income tax on the transfer, provided it's a genuine restructure and ultimate economic ownership doesn't change.
Do my employees have to be re-hired when I become a company?
They move to the company as their new employer, but because your company is an associated entity of you, their service is treated as continuous — annual leave, personal leave and length of service carry across. You give each employee a letter confirming the transfer, then set up PAYG withholding, super, Single Touch Payroll and workers compensation under the company.
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.