Sole trader or company? The money differences that matter

“Should I be a company?” is one of the first money questions owners ask their accountant, and one of the most misunderstood. It’s not purely a tax question. Structure changes who owns the money, how you get paid, what happens if things go wrong and how you borrow.

What’s the core difference?

business.gov.au puts it plainly: a sole trader is legally responsible for all aspects of the business, while a company is a legal entity separate from you. Everything else flows from that.

	Sole trader	Company
Legal status	You are the business	Separate legal entity
Income tax	Your personal marginal rates, with the tax-free threshold	Flat rate: 25% for base rate entities, 30% otherwise (2025–26)
Tax-free threshold	Yes (personal)	No — tax on every dollar of taxable profit
Liability	Personal	Generally limited, with director duties and exceptions
Paying yourself	Drawings — the profit is yours	Wages, dividends or both, under set rules
Super for owner	Voluntary	Required on wages paid to you as an employee
Set-up and running cost	Low	Higher: registration, annual review, accounting
Small business concessions	Available under $10m turnover	Available under $10m turnover

Structure also shapes the paperwork. Companies lodge their own tax return, keep company records, and need to meet ASIC obligations each year, while directors still lodge personal returns. Budget for the extra accounting time when you compare the options, because it’s a real ongoing cost.

How is tax different in practice?

As a sole trader, your business profit is added to any other income and taxed at your marginal rate. At modest profits, the tax-free threshold and lower brackets can make this efficient.

A company pays tax on its taxable profit at a flat rate. The ATO lists 25% for base rate entities in 2025–26. Money is then taxed again in the owner’s hands when it’s paid out as a wage or a dividend — though franking credits on dividends reflect company tax already paid.

A company can make sense when profits are high enough that marginal rates would bite, and when you want to leave some profit in the business to fund growth. Capital gains rules also differ: business.gov.au notes companies generally can’t use the CGT discount available to individuals.

What changes about your money in a company?

This is where many new company owners trip up. The company’s money isn’t yours. You can’t simply transfer it to your personal account whenever you like. Owners generally take money out as:

• a wage — through payroll, with PAYG withholding and super;
• dividends — from profits, declared properly;
• loans — which must be documented and are subject to tax rules your accountant will explain.

Our feature on how to pay yourself walks through the options for each structure.

Thinking about restructuring as part of a growth plan that needs funding? Check what’s possible — there’s no credit check to enquire.

Does structure affect borrowing?

Less than people think. Lenders consider sole traders and companies alike. For a company, lenders usually ask directors for a personal guarantee, so the “limited liability” benefit is often reduced where business debt is concerned. What matters most:

• trading history and bank statement conduct;
• tax lodgements up to date, and any ATO debt explained;
• security, where available;
• the business plan and the owners’ experience.

When is it worth switching?

Signs it may be time to talk to your accountant about a company:

• profits are consistently high enough that your marginal rate is climbing;
• you want to retain profits in the business to fund growth;
• you’re taking on staff, bigger contracts or more risk;
• you’re bringing in a business partner or investor.

Signs to stay put: modest profits, a simple one-person business, and a preference for low admin. There’s no prize for complexity.

What does changing structure involve?

Moving from sole trader to company isn’t just a form. Typically it means:

1. Registering the company with ASIC and getting a new ABN and tax registrations for it.
2. Opening new business bank accounts in the company’s name.
3. Transferring assets, contracts and staff — each with tax and legal consequences your accountant and lawyer will map out.
4. Updating customers and suppliers — invoices, payment details, terms of trade and licences.
5. Setting up payroll if you’ll pay yourself a wage, including super under Payday Super.
6. Rethinking your tax set-aside, since the company pays tax at a flat rate on its profit — see how much to set aside for tax.

Timing matters. Many owners restructure at the start of a financial year to keep the books clean. Plan it with your accountant a few months ahead, and check how existing loans and leases will be handled. If you’re growing into a company as part of a bigger plan, our growth plan guide helps map the funding side.

Whatever the structure, fund the plan properly

Structure is a tool for growing safely. When the growth plan needs capital — equipment, a hire, a new site or a business purchase — the right funding makes it possible without starving day-to-day cash flow.

We consider sole traders, partnerships and companies for unsecured facilities typically from $5,000 to $500,000 and property-secured loans from $20,000 to $5,000,000. Enquiring doesn’t involve a credit check, we don’t circulate your details among other lenders, and a real person calls to understand your business. Answer the form accurately — structure, turnover, amount and purpose — so we can suggest the right fit first time.

See if you qualify →