Sole Trader to Company: How and When to Restructure

To move from sole trader to company, you register a new Pty Ltd, give it its own ABN, TFN and tax registrations, transfer the business's assets, contracts, staff and licences across, then cancel your sole trader ABN last. On 2026-27 rates the tax case starts at about $142,000 of profit you can leave in the business, but risk, partners or a big contract can justify it sooner.

Done properly, with the small business restructure roll-over, the move costs ASIC fees plus professional fees and triggers no income tax on the transfer. Done badly, it triggers capital gains tax, opens an insurance gap and leaves you with a year of messy books. This guide covers when the switch is worth it, every step in order, the tax rules from the ATO, state duty, costs and timing. If you're still deciding, start with sole trader vs company.

When a company is worth the switch

The tax signal

A small company pays a flat 25% on its taxable income if it is a base rate entity (aggregated turnover under $50 million, no more than 80% passive income). As a sole trader you pay individual rates instead. For 2026-27 the ATO's resident rates are nil to $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. Sole traders also get the small business income tax offset, 16% of the tax on business income up to $1,000 a year, which a company can't claim.

Put those together and a sole trader's average rate reaches 25% at roughly $142,000 of profit. Above that, each extra dollar is taxed at 39% including Medicare (47% past $190,000), so each dollar you can leave in a company is taxed 14 to 22 cents less for now.

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 doesn't make the saving permanent, and dividends don't attract the small business offset. That's why the practical threshold is "profit reliably above about $142,000 to $150,000 and you're living on less than you earn". Our sole trader vs company guide runs the numbers at $50,000, $100,000 and $150,000, and paying yourself as a sole trader vs company covers wages versus dividends.

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 (with exceptions for personal guarantees, director penalties for unpaid PAYG withholding, GST and super, and insolvent trading). If one failed job 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. If you want a business partner with equity, an outside investor or an employee share plan, a company is the 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 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 rules can attribute it back to you unless you pass the PSI tests. You'd add compliance for no tax benefit.
• Profit is under about $100,000 and you spend all of it. The ASIC fee and extra accounting would cost more than any saving.
• Your real goal is splitting income with family. A company alone doesn't do that well. That conversation is about a family trust, and our trust vs company guide compares the two.

The restructure, step by step

Order matters. Set the company up, move everything into it, start trading through it, then close the sole trader side. business.gov.au's own outline follows the same order: register the company, transfer assets and licences, then cancel your ABN.

1. Get the plan and the advice first

List every asset the business owns (goodwill, equipment, vehicles, stock, work in progress, the domain name, trademarks, the customer list) and every contract, lease, licence and policy in your name. Your accountant uses this to decide whether the roll-over applies, which assets should move and at what values, and what needs a written transfer agreement. Two decisions to make here:

• Debtors. The ATO notes that a company taking over your book debts can't claim a bad debt deduction if one later goes bad, because the company never included that income. Many owners collect existing invoices in the sole trader name instead.
• Private-use assets. A car you also use privately may be better kept out of the company.

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, and no one can apply on your behalf, including your accountant. See our director ID guide.

3. Register the company

Register the Pty Ltd through the Business Registration Service at business.gov.au, a private provider or your accountant. ASIC's fee is $636 (as at 18 October 2026) and confirmation usually arrives within 2 business days. If you'll be the sole director and sole shareholder, the Corporations Act's special rules for one-person companies apply and the replaceable rules don't. Our guide to registering a company has the full checklist, including consents and the share structure, and compares provider prices; company setup costs builds the first-year budget.

Under the roll-over, you must own the company's shares in the same proportion as you owned the business. If you owned 100% of the business, you need 100% of the shares.

4. New ABN, TFN and tax registrations

The company can't inherit your ABN or TFN. The Australian Business Register lists sole trader to company as a change that needs a new ABN. Apply for the company's ABN and TFN (the Business Registration Service can bundle them with the company registration). Register the company for GST if its GST turnover will reach $75,000, which in practice means from day one if your sole trader business was registered, and register for PAYG withholding before it pays any wages, including yours.

5. Bank accounts, merchant facilities and software

Open accounts in the company's name (compare business bank accounts) and move direct debits, card terminals and payment gateways across. Start a fresh accounting file for the company rather than continuing the sole trader one; mixing two entities in one set of books causes most restructure headaches at tax time.

6. Transfer the business name

If you trade under a registered business name, ASIC's transfer process runs like this: you, as the current holder, start the transfer and receive a transfer number. The number is valid for 4 months and 28 days. The company registers the name under its new ABN using that number, and ASIC cancels your registration within 28 days of your transfer application. The time left on your registration isn't carried over, so the company pays a fresh fee of $47 for one year or $108 for three (as at 18 October 2026).

7. Move the assets, with paperwork

Assets change legal owner, so document it. A short business transfer agreement lists what's transferred and at what value. Then follow through: change vehicle registrations with your state transport authority, move the domain name to the company's registrant details, assign trademarks and update the IP Australia register (business.gov.au lists this as a required step), and record equipment and stock 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 often issued to a specific entity, so the company may need its own licence before it can legally do the work. Check each licence with the issuing regulator before your switch date; our guide to business licences helps you list them.

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 running under your name. A claim lodged by the wrong entity can be refused. See public liability insurance and workers compensation insurance for what each state requires.

10. Employees

Staff move to the company as their new employer. Under the Fair Work Act's transfer of business rules, the Fair Work Ombudsman says the new employer must recognise service with the old employer for most entitlements, including sick and carer's leave, flexible working requests and parental leave. A new employer that isn't an associated entity can sometimes decline to recognise service for annual leave and redundancy. The FWO describes associated entities as businesses where one owns or controls the other (section 50AAA of the Corporations Act). A company you control will generally be one, so in a sole trader to company move, annual leave balances carry across and the switch can't be used to reset entitlements. Long service leave depends on your state's law and any registered agreement.

Practical steps: give each employee written confirmation of the transfer date and continuity of service, collect TFN declarations and super fund details 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 12% super guarantee on qualifying earnings, including any salary it pays you, with each pay run under payday super. If you pay the company to take over accrued leave, the ATO treats that "accrued leave transfer payment" as deductible to you and assessable to the company.

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 include the business schedule in your individual tax return for the part-year you traded. Then, per the ABR's instructions:

• cancel PAYG withholding before you cancel the ABN
• cancel the ABN once all lodgment, reporting and payment obligations are met

Cancelling the ABN also cancels your GST, luxury car tax, wine equalisation tax and fuel tax credit registrations, which is why the company's own registrations must already be in place.

The tax side: roll-over, GST and stamp duty

The ATO's guide to incorporating your business says transferring an asset to your company is a CGT event. Without relief, you could owe tax as if you'd sold the business to the company at market value. For trading stock moved outside the roll-over, the ATO deems the disposal value to be market value, whatever price you put in the agreement.

Small business restructure roll-over

The small business restructure roll-over (Subdivision 328-G of the tax law) is built for this move. The conditions, from the ATO and the legislation:

• Size. Each party is a small business entity (or an affiliate of or connected with one) with aggregated turnover under $10 million.
• Assets. The assets are active assets used in the business: CGT assets, depreciating assets, trading stock or revenue assets. Loans to shareholders and other non-business assets don't qualify.
• Genuine restructure. The transfer is part of a genuine restructure of an ongoing business, not an artificial or tax-driven scheme. A safe harbour treats the restructure as genuine if, for 3 years afterwards, ultimate economic ownership of the significant assets doesn't change, they stay active assets and there's no significant private use. The ATO's ruling LCR 2016/3 explains the test.
• Ownership. Ultimate economic ownership doesn't change. If you owned 100% of the business, you must own 100% of the company's shares. The ATO gives an example of a restructure that failed because shares were split unevenly to lower a couple's tax.
• Residency. The transferor and the company must meet the residency requirement, which for an individual and a company means being an Australian resident.

If you qualify and choose the roll-over:

• no income tax arises for you or the company at the time of transfer
• you're treated as receiving your existing tax cost, and the company takes over the assets at that cost
• depreciating assets keep the same method and effective life, with no balancing adjustment
• pre-CGT assets keep their pre-CGT status
• for the small business 15-year exemption, the company is treated as acquiring the asset when you did.

The ATO also points out what the roll-over doesn't cover: stamp duty and GST still need checking, and the general anti-avoidance rule can still apply. The roll-over is optional, and the ATO says you don't send a special notification. Your choice shows in how the transfer is treated in your tax returns, so keep the valuation, the agreement and a note of the commercial reasons with your records.

One long-term cost to weigh: a company can't use the 50% CGT discount when it later sells goodwill or other assets. From 1 July 2027, the discount for individuals and trusts is itself replaced by cost base indexation and a 30% minimum tax for gains that accrue after that date, a change the ATO confirms is law. If a sale is on the horizon, model both structures with your accountant before you move valuable goodwill.

If you don't qualify

The ATO lists separate roll-overs for businesses that miss the restructure roll-over conditions: one for a single CGT asset and one for all the assets of a business transferred to a company you wholly own (Subdivision 122-A). They can be applied asset by asset, so you can leave out a private-use car, but they can't be used for collectables or personal use assets, and trading stock only rolls over if you transfer all the business's assets. Gains on goodwill that isn't rolled over are taxable unless the small business CGT concessions apply.

Other tax points

• Losses stay with you. Tax losses you made as a sole trader are personal and don't move to the company.
• Prepayments. If you prepaid rent or services that the company will use, the ATO says you may still deduct the part that relates to your period.
• Restructure costs. Capital costs of incorporating, such as legal, search and lodgment fees, may be deductible over five years in equal parts, according to the ATO.

GST

The roll-over deals with income tax only. Moving the whole business to the company can be a GST-free supply of a going concern if the conditions are met: the company is registered (or required to be registered) for GST, you both agree in writing that it's a going concern, you supply everything the company needs to keep operating, and you carry on the business up to the day of transfer. The ATO's ruling GSTR 2002/5 sets out the detail; see the ATO's page on the sale of a going concern. Check the conditions before you sign, because they have to be met, not assumed.

State stamp duty

Duty depends on your state, and on whether any land or lease moves across.

• NSW. Revenue NSW (updated 31 August 2026) says goodwill, intellectual property, statutory licences and debtor receivables aren't dutiable. Land and interests in land are, including the assignment of a commercial or retail lease, and fixtures always count as land. Goods such as furniture and portable equipment become dutiable if they move under the same arrangement as land or a lease, though stock-in-trade and registered vehicles are excluded.
• Queensland. Business assets can attract duty, but the Queensland Revenue Office offers a full or partial exemption for small business restructures from a sole trader to a company, where you become a shareholder. It isn't available if the assets transferred are worth more than $10 million unencumbered, the business's turnover is more than $5 million (QRO may average 3 years), or the company has traded before. Apply with evidence of ownership before and after.
• Other states and territories. Rules differ. Any real property or lease moving across can attract duty anywhere, so check with your state revenue office before signing the transfer agreement.

What it costs

ASIC fees are from ASIC's fee schedule; provider prices are from our company registration guide. The professional fee estimates are published by Y&S Accounting and Scale Suite, both firms selling these services, and both pages still quote ASIC fees from before July 2026. Treat them as a range to test quotes against, not a market average.

The ongoing lines are the ones to take seriously. The company needs to save you more than its running 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, and one clean company year with no apportioned depreciation, no split payroll and no mid-quarter GST juggling. Your 30 June stocktake 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 has already happened. Then restructure now and accept a messier part-year. A split year costs accounting fees; missing the contract costs 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. Each 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 roll-over paperwork. Without a written agreement, valuations and records showing the choice, you may have made a taxable sale to yourself.
• Splitting the shares differently from the business. Changing who owns what fails the roll-over's ownership test.
• Transferring debtors. The company can't deduct a bad debt it takes over; collect old invoices in the sole trader name.
• 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; our Division 7A review checklist explains the fix if it has already happened.
• Incorporating a personal services business. If the 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 $142,000 on 2026-27 rates once the small business income tax offset is counted, 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, lease and business name.
• The small business restructure roll-over can move goodwill, equipment and stock into the company with no income tax on the transfer, but only if turnover is under $10 million, ownership stays the same and the restructure is genuine.
• GST and state duty are separate: plan for a GST-free going concern, and check duty if a lease or land moves.
• Employees keep their service and leave balances because a company you control is generally an associated entity under the Fair Work rules.
• Aim for 1 July, start the paperwork in autumn, and cancel the sole trader ABN last.

Where to get help

• business.gov.au: changing a sole trader business to a company, and the Business Registration Service
• ASIC: company registration, fees and business name transfers
• Australian Business Registry Services: apply for your director ID
• ATO: the tax implications of incorporating, the restructure roll-over, PSI rules and cancelling registrations
• Fair Work Ombudsman: employee entitlements on a transfer of business, or call 13 13 94
• Your state revenue office: duty on business assets and any restructure exemption
• Your accountant and a commercial lawyer: the roll-over, 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

Related tasks

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