Most Australian tradies start as a sole trader because it’s quick and cheap. As the business grows, the question comes up: should I become a company? Here’s how the two structures actually compare in 2026, in plain English.
Sole trader — simple and cheap
A sole trader is the simplest structure. You operate under your own name with an ABN, lodge business income in your personal tax return using your individual tax file number, and pay tax at individual marginal rates (including the $18,200 tax-free threshold). It’s low-cost and low-admin. The catch: there’s no legal separation between you and the business, so you have unlimited liability — your personal assets can be on the line for business debts.
Company (Pty Ltd) — a separate legal entity
A proprietary limited company is a separate legal entity that you own. The headline benefits are limited liability and a flat company tax rate — 25% for a base rate entity (broadly, turnover under $50 million, which covers virtually all trade businesses) or 30% otherwise. But a company has no tax-free threshold, needs its own tax return, requires every director to have a director ID, and carries ASIC costs — currently around $600 to register and roughly $330 a year for the annual review (both rise slightly from 1 July 2026).
Tax: marginal rates vs the company rate
As a sole trader you pay the individual resident rates for 2025–26:
- $0 – $18,200: nil (tax-free threshold)
- $18,201 – $45,000: 16% (dropping to 15% from 1 July 2026)
- $45,001 – $135,000: 30%
- $135,001 – $190,000: 37%
- $190,001+: 45%
- (plus the 2% Medicare levy)
A company instead pays a flat 25% (for most trade businesses). Once your profits climb into the higher individual brackets, that flat company rate — plus the ability to retain profit in the company or pay it out as franked dividends — is often where a company starts to make sense. The right answer depends entirely on your numbers, which is an accountant conversation.
Liability — the part that matters on the tools
This is the difference tradies feel most. As a sole trader, a bad debt, a dispute or a claim can reach your house, car and savings. A company puts a legal wall around your personal assets. But don’t over-rely on it: directors can still be personally liable if they breach their duties, and — very common for small trade companies — when they sign personal guarantees for finance or supplier accounts, or under the director penalty rules for unpaid tax and super. The wall is real, but it has doors.
Other structures: partnership and trust
There are two more you’ll hear about. A partnership is two or more people sharing income and losses — simple, but partners are generally personally liable. A trust has a trustee running the business for beneficiaries; it can help with asset protection and tax flexibility but is more complex and costly to set up. Both are worth raising with an accountant if your situation is more involved.
When tradies switch to a company
Common triggers to move from sole trader to company include:
- Profits rising into the higher marginal brackets, where the flat company rate looks attractive.
- Taking on bigger jobs, employees or subbies — more risk to wall off.
- Head contractors or clients requiring you to be a Pty Ltd to engage you.
- Planning to bring in a partner or eventually sell the business.
One practical note: you can’t transfer your sole-trader ABN to a company — it gets a new ABN, and licences, assets and contracts have to be moved across. There are costs and tax consequences to changing structure, so get advice from a registered tax agent before you do it.