Sole Trader vs Company (Pty Ltd): 2026-27 Tax and Costs

A sole trader pays individual tax rates on all business profit and is personally liable for every business debt. A Pty Ltd company pays a flat 25% on profit it keeps, separates most debts from you, and costs $636 to register plus $342 a year in ASIC fees (as at 17 October 2026). On 2026-27 rates, the company only wins on tax for profit you leave in it.

That last point is where most sole trader vs Pty Ltd comparisons go wrong. They set a sole trader's tax beside a flat 25% and stop. The real answer depends on how you take money out of the company, what it costs to run, and how much risk the business carries. This guide runs the numbers at $50,000, $100,000 and $150,000 of profit, then covers liability, director duties, losses, super, selling, and when to switch.

Sole trader vs company at a glance

Fees and rates as at 17 October 2026, for the 2026-27 income year.

What changed for 2026-27

Several numbers in this comparison moved on 1 July 2026. Older guides still quote the previous figures.

• Lowest tax rate cut to 15%. The rate on income between $18,201 and $45,000 fell from 16% to 15% for 2026-27, and is legislated to fall to 14% from 2027-28. This lowers tax on every sole trader with profit above $18,200. It also lowers tax on wages and dividends a company pays you.
• ASIC fees indexed. Company registration rose to $636 and the proprietary company annual review fee to $342.
• Payday super. Super guarantee on a director's wages is still 12%, but it is now calculated on qualifying earnings and paid for each payday instead of quarterly. See our payday super guide.
• Concessional cap up. The general concessional contributions cap rose from $30,000 to $32,500.
• Division 7A benchmark rate. The minimum interest rate on a complying loan from your company is 8.77% for 2026-27, up from 8.37%.

How each structure is taxed

Sole trader: your profit is your income

As a sole trader, the business's net profit goes on your individual tax return and is taxed at resident rates. There's no separate business tax return, and drawings don't change the tax: if the business makes $100,000 and you draw $60,000, you're taxed on $100,000. Our sole trader tax guide covers what you can claim.

Resident tax rates for 2026-27 (ATO, as at 17 October 2026):

Three things adjust that figure:

• Medicare levy: 2% of taxable income for most people.
• Low income tax offset: up to $700, phasing out completely at $66,667.
• Small business income tax offset: 16% of the tax on your net small business income, capped at $1,000, if aggregated turnover is under $5 million. It doesn't apply to personal services income unless you run a personal services business. Companies can't get it.

Company: 25% on what it keeps

A company is a separate taxpayer. It has no tax-free threshold. If it is a base rate entity (aggregated turnover under $50 million and no more than 80% passive income), it pays 25% on every dollar of taxable income; otherwise 30%. Most trading businesses pass both tests. Our guide to the base rate entity test covers the exceptions.

The 25% is not the end of the story. Profit reaches you in one of three ways, and each is taxed again in your hands:

• Wages: deductible to the company, taxed at your marginal rate, with 12% super on top.
• Franked dividends: paid from after-tax profit. You include the dividend plus the franking credit in your income, pay tax at your marginal rate, and get the credit back as an offset. If the credit is more than your tax, the excess can be refunded.
• Retained profit: stays in the company at 25% until you pay it out later.

Tax at $50,000, $100,000 and $150,000 of profit

These examples are illustrative. Assumptions: 2026-27 resident rates, 2% Medicare levy, no other income, no HELP debt, no private health surcharge, a base rate entity company at 25%, and a business that isn't caught by the personal services income rules. "Profit" means what the business earns before paying you anything. Super contributions are taxed at 15% in the fund, and we include that tax so the structures compare fairly.

Sole trader

The arithmetic:

• $50,000: $4,020 + 30% × $5,000 = $5,520. Low income tax offset: $325 − 1.5% × $5,000 = $250. Small business offset: 16% × $5,520 = $883. Medicare: 2% × $50,000 = $1,000. Total $5,520 − $250 − $883 + $1,000 = $5,387.
• $100,000: $4,020 + 30% × $55,000 = $20,520. Small business offset: 16% × $20,520 = $3,283, capped at $1,000. Medicare $2,000. Total $21,520.
• $150,000: $31,020 + 37% × $15,000 = $36,570. Offset capped at $1,000. Medicare $3,000. Total $38,570.

Company: four ways to take the same profit

All figures are total tax paid this year by the company, you and your super fund, rounded to the nearest dollar.

How each column is worked out:

• A. Keep it all: 25% × profit. You receive nothing yet, so this is tax deferred, not tax saved.
• B. All as wages: the company pays salary S plus 12% super so that S × 1.12 = profit. At $100,000: salary $89,286, super $10,714. Your tax: $4,020 + 30% × $44,286 = $17,306, plus Medicare $1,786 = $19,091. Super fund tax: 15% × $10,714 = $1,607. Total $20,699. The company's taxable profit is nil.
• C. All as dividends: the company pays 25%, then pays you the rest fully franked. At $100,000: company tax $25,000. You declare $75,000 plus a $25,000 credit = $100,000. Tax $20,520 plus Medicare $2,000 = $22,520, less the $25,000 credit = a $2,480 refund. Total tax $25,000 − $2,480 = $22,520. At $50,000 the refund is $6,230, and you only get it after you lodge your return.
• D. Mix: at $150,000: salary $100,000, super $12,000, retained $38,000 taxed at 25% = $9,500. Your tax $20,520 plus Medicare $2,000 = $22,520. Super fund tax $1,800. Total $33,820, with $28,500 left in the company after tax.

What the numbers show

Paying everything out puts the company behind. Column C is $883 to $1,000 above the sole trader at these profit levels, because dividends are taxed at your marginal rates like sole trader profit but without the small business income tax offset. Column B looks cheaper only because part of the money went into super at 15%. A sole trader can do the same: put the same $10,714 into super and claim a deduction, and the sole trader's total tax at $100,000 is $19,699, again $1,000 less than the company.

The company wins only on retained profit. At $150,000, column D's total of $33,820 compares with $35,690 for a sole trader who makes the same $12,000 super contribution. That's a yearly deferral of about $1,870. When the $28,500 is later paid out as a franked dividend on top of a $100,000 salary, about $2,870 of top-up tax is due. The company's total then becomes $36,690 against the sole trader's $35,690, so the offset puts the sole trader $1,000 ahead again.

The deferral grows quickly above $150,000. Keep the same $100,000 salary and the deferral is about $8,870 a year at $200,000 of profit and about $19,710 at $250,000, because each retained dollar is taxed at 25% instead of 32%, 39% or 47% (marginal rate plus Medicare levy).

The crossover is about $142,000. A sole trader who gets the full $1,000 offset reaches an average tax rate of 25% at roughly $142,000 of profit. Below that, keeping profit in a company at 25% costs more than a sole trader pays on the same profit. Guides that put the crossover at $135,000 leave out the offset.

Now set the deferral against the running costs. At $150,000, a $1,870 deferral is close to the ASIC fee of $342 plus the low end of published extra accounting costs. On tax alone, a company rarely pays for itself until profit is well above $150,000 and you can leave a real share of it in the business.

Two traps that change the result

• Personal services income. If most of your income is a reward for your personal skills or effort, the PSI rules can attribute it to you personally, so the company can't keep it at 25%. The ATO describes PSI as income produced mainly (more than 50%) from your skills or efforts as an individual.
• Dividends to family. Paying dividends to a spouse on a lower income can lower total tax, but it only works where they genuinely hold shares, the business isn't caught by the PSI rules, and the arrangement is commercially real. Get advice before you rely on it.

For more on setting a salary and dividend mix, see how to pay yourself as a sole trader or company owner.

Why the company result depends on how you take the money

A company's money is not your money. business.gov.au puts it plainly: even if you own every share, the money belongs to the company, and you can't take personal drawings from it. There are three legitimate routes and one expensive mistake.

Wages

The company registers for PAYG withholding, puts you on payroll, withholds tax and reports through Single Touch Payroll. It pays 12% super guarantee on your qualifying earnings each payday. Wages are deductible to the company, so profit paid as wages is taxed once, at your rate.

Dividends and franking credits

Dividends come from after-tax profit. The directors decide when to pay them, and the company must give each shareholder a distribution statement. The franking credit stops the same profit being taxed twice. The useful part is timing: you can keep profit in the company in a high-income year and pay dividends in a lower-income year.

Retained profit

Profit you leave in the company is taxed at 25% and can fund equipment, stock, staff or a cash buffer. This is where the company's tax advantage actually sits.

The Division 7A trap

If money leaves the company for you or your family and it isn't a wage, a declared dividend or a properly documented loan, Division 7A can treat it as an unfranked dividend, taxed at your full marginal rate with no credit for the company tax. That includes the company paying your personal bills.

You avoid it by repaying the amount, or putting it on a written complying loan agreement, before the company's tax return lodgment day. A complying loan needs interest at least at the benchmark rate (8.77% for 2026-27), a maximum term of 7 years (25 years if secured by a registered mortgage over real property), and minimum yearly repayments made by 30 June. If you've already been dipping into the company account, use our Division 7A review checklist before year end.

Setup and running costs

ASIC fees aren't subject to GST. If you use an online provider or accountant to register the company, their fee sits on top of the $636. Our step-by-step guide to registering a company compares ASIC-direct registration with published provider prices, and our company setup costs guide helps you build a first-year budget.

Accounting fees vary more than any other cost. We found no independent survey. Two firms that sell these services publish very different estimates: a Brisbane accounting firm puts the extra cost of a company at $1,500 to $3,000 a year above a sole trader, while a finance outsourcing firm quotes $4,000 to $12,000 a year for company accounting and tax. What drives the price is the number of transactions, payroll, whether you keep your own books in software, and how much tax planning you want. Ask two or three accountants for a fixed annual quote before you decide.

Liability: what a company protects and what it doesn't

Sole trader: no separation

As a sole trader you and the business are the same legal person. business.gov.au notes there is no division between business and personal assets, including your share of jointly owned assets such as a house or car. A customer injury claim, a supplier debt or a contract dispute is your personal debt.

Insurance does most of the protecting for sole traders. Our sole trader insurance guide covers public liability, professional indemnity and income protection.

Company: protection with gaps

A company is generally liable for its own debts, and shareholders don't have to pay them. That protects you against unsecured suppliers, most customer claims and contract disputes you didn't personally guarantee. The gaps:

• Personal guarantees. Lenders and landlords often ask small-company directors to guarantee the company's obligations. NAB's own guide notes it is not unusual for directors to be required to give personal guarantees when a company borrows. Once you sign one, you're personally liable for that debt, so a young company's loan and lease are usually not protected by its structure.
• Director penalty regime. Directors are personally liable for the company's unpaid PAYG withholding, GST and super guarantee charge. The ATO issues a director penalty notice and can start recovery 21 days later. A new director becomes liable for existing unpaid amounts unless, within 30 days of appointment, the company pays them, appoints an administrator or small business restructuring practitioner, or is wound up.
• Insolvent trading. Directors must not let the company incur debts it can't pay. ASIC warns of serious consequences if you do.
• Your own wrongdoing. Limited liability doesn't cover fraud or breaches of your duties as a director.

A company also doesn't remove the need for insurance. business.gov.au notes that directors and officers insurance isn't compulsory but may be worth considering, and workers compensation is needed in either structure if you employ staff. See workers compensation insurance for state rules.

Director duties you take on

Once you run a company you are a director, with duties under the Corporations Act. ASIC's list includes acting in good faith and in the company's best interests, using care and diligence, avoiding conflicts, keeping proper records and preventing insolvent trading. In practice that means:

• Before registration: every director needs a free director ID, and at least one director of a proprietary company must normally live in Australia.
• Every year: pay the $342 annual review fee, check the details on ASIC's annual statement, and pass a solvency resolution within 2 months of the review date. Our annual review checklist walks through it.
• Within 28 days: tell ASIC about changes to addresses, officeholders and shareholders.
• Ongoing: keep the register of members, minutes of meetings and resolutions, and financial records for 7 years. Display the company name and ACN on invoices, letterhead and other documents.

A sole trader has none of these obligations. They have to keep tax records for 5 years and tell agencies about changes within 28 days, and that's about it.

Losses, super and selling the business

If the business makes a loss

A sole trader can offset a business loss against other income, such as wages from a job, if they pass the non-commercial loss rules. You need income (taxable income plus some other amounts) under $250,000 and must pass one of four tests, such as at least $20,000 of assessable business income in the year. Otherwise you carry the loss forward. Our non-commercial loss checklist explains the tests.

A company's loss stays in the company. It can carry the loss forward and use it against future company profits if it keeps the same majority ownership and control, or passes the same business or similar business test after an ownership change. From the 2026-27 income year, an eligible company that paid tax in either of the previous two years can instead carry a loss back and claim a refundable tax offset, limited by its franking account balance. It can't offset the loss against your personal salary. A business expecting early losses while you still have a job is often better off starting as a sole trader.

Super

A sole trader doesn't have to pay super for themselves. You can make personal contributions and claim a deduction after giving your fund a notice of intent, up to the $32,500 concessional cap for 2026-27. Our super for sole traders guide covers how.

A company must pay 12% super guarantee on wages it pays you as a director-employee, and under payday super it goes out with each pay run. The company can contribute more up to the same cap.

Selling the business

A sole trader sells the business's assets, such as goodwill, equipment and stock. Capital gains on assets held at least 12 months get the 50% CGT discount for individuals, but only for the part of the gain that builds up to 30 June 2027. Under the tax reform law passed in June 2026, gains that accrue from 1 July 2027 are worked out with cost base indexation instead, with a 30% minimum tax rate; the small business concessions are kept. The small business CGT concessions can reduce the gain further if aggregated turnover is under $2 million or your net CGT assets are $6 million or less. The concessions include the 15-year exemption, the 50% active asset reduction, the retirement exemption (lifetime limit $500,000) and a roll-over.

A company can be sold in two ways. You can sell the shares, which keeps contracts, licences and staff inside the same legal entity. Individual shareholders may get the CGT discount on gains accrued to 30 June 2027 (indexation and the 30% minimum tax apply after that), and the small business concessions can apply if extra conditions for shares are met. Or the company sells its assets, but the company can't use the 50% CGT discount, and getting the proceeds to you raises dividend and franking questions. Talk to an accountant well before you list the business for sale.

Which structure fits? A quick decision table

Partnerships and trusts are covered in our broader business structure comparison. If you're leaning towards a company, our company structure guide explains how a Pty Ltd works day to day.

Signs it's time to switch from sole trader to company

• Your profit has been above about $150,000 for two years and you don't need all of it to live on.
• You've hired staff, taken on premises or signed contracts where one claim could exceed your insurance.
• A partner, investor or key employee wants equity.
• A customer, franchisor or tender requires you to contract through a company.
• You plan to sell the business and want the option of selling shares.
• Your accountant has checked that the PSI rules don't apply to your income.

If only the first sign applies, run the numbers above with your real figures first. If the risk signs apply, the case for a company can stand on its own.

How to switch from sole trader to company

The order matters: set up the company, move the business into it, start trading through it, and only then close the sole trader side.

1. Get advice first. List every asset, contract, lease, licence and policy in your name. Your accountant uses this to check the roll-over and the transfer values.
2. Apply for your director ID at Australian Business Registry Services. You must have it before you're appointed.
3. Register the company through the Business Registration Service or a provider. See our company registration guide.
4. Get the company's own ABN, TFN and tax registrations. Your sole trader ABN can't be transferred. Register for GST and PAYG withholding as needed.
5. Open bank accounts and a fresh accounting file in the company's name.
6. Move assets, contracts, employees, licences and insurance to the company with written agreements.
7. Cancel your sole trader ABN last, after final lodgements. Cancelling it also cancels your GST registration.

Our sole trader to company restructure guide covers each step in detail, including employees' continuity of service, contract novations and why 1 July is the cleanest switch date.

CGT and the small business restructure roll-over

Moving goodwill, equipment and stock to your company is a disposal for tax purposes, and without relief it could trigger capital gains tax or income tax. The small business restructure roll-over lets you move active assets without an income tax liability at the time of transfer if:

• aggregated turnover is under $10 million
• the assets are active assets: CGT assets, depreciating assets, trading stock or revenue assets used in the business
• the transfer is part of a genuine restructure of an ongoing business, not a tax-driven scheme
• ultimate economic ownership doesn't change. If you owned 100% of the business, you must own 100% of the company's shares.

The company takes over the assets at your existing tax cost. The ATO notes that stamp duty and GST may still apply, and that the roll-over doesn't stop the general anti-avoidance rules from applying. Tax losses you made as a sole trader stay with you and don't move to the company.

Key takeaways

• On 2026-27 rates a sole trader pays about $5,387 tax on $50,000 profit, $21,520 on $100,000 and $38,570 on $150,000, after offsets and including the Medicare levy.
• A company pays 25% on retained profit, but once profit is paid out as wages or franked dividends the total tax lands close to the sole trader figure, up to $1,000 higher because the company loses the small business income tax offset.
• A company saves tax only on profit you leave in it. At $150,000 profit with a $100,000 salary the yearly deferral is about $1,870, which the extra running costs can wipe out.
• A company costs $636 to register and $342 a year in ASIC fees (as at 17 October 2026), plus a company tax return and more accounting.
• Limited liability is real but narrow: personal guarantees, director penalty notices for unpaid PAYG withholding, GST and super, and insolvent trading can still reach your personal assets.
• You can start as a sole trader and move to a company later; the small business restructure roll-over can move active business assets without an income tax bill if you meet its conditions.

Where to get help

• business.gov.au compares sole traders and companies and runs the Business Registration Service.
• ATO: business structures and tax obligations, the small business income tax offset, Division 7A and the restructure roll-over.
• ASIC: company registration, fees and director obligations.
• Australian Business Registry Services: director IDs.
• Tax Practitioners Board: check that your accountant or tax agent is registered on the TPB register.
• Australian Small Business and Family Enterprise Ombudsman: free guidance and referrals at asbfeo.gov.au.

Related tasks

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