Sole trader vs company in Australia for 2026-27: the tax at three profit levels, what a company really costs to run, and a calculator that shows when switching saves money.
Last reviewed October 2026 by Megan Birot, Content Editor, OurTop10. Figures checked against the sources named in the article.
What changed (29 September 2026): new guide, built on the 2026-27 tax rates (the 16% bracket dropped to 15% on 1 July 2026) and the ASIC fees that took effect the same day.
- A sole trader pays personal tax on every dollar of profit: $39,570 on $150,000 in 2026-27, including the Medicare levy.
- A company pays a flat 25% on profit it keeps. On the same $150,000, drawing $90,000 in wages, the total tax bill is $34,320, a saving of $5,250 this year.
- That saving is a deferral, not a gift. The $45,000 left in the company is taxed again in your hands when you take it out, with a credit for the 25% already paid.
- A company costs about $1,800 to $2,500 a year more to run: the $342 ASIC annual fee plus higher accounting fees. Below roughly $120,000 of profit, that eats the tax saving.
Jump to: Side by side · The tax in dollars · Calculator · When to switch · Asset protection · How switching works · FAQs
Part of our accountants guides, alongside what accountants charge in 2026 and the OurTop10 shortlists of the best accountants in Sydney, Melbourne and Brisbane.
A sole trader and their business are the same person for tax and for debts. A company is a separate legal person: it pays its own tax at 25%, owns its own assets and carries its own debts. For most people the decision comes down to two numbers, how much profit the business makes and how much of it you need to live on, and one question, whether you can afford to be personally liable if something goes wrong.
Sole trader vs company: side by side
| Feature | Sole trader | Company (Pty Ltd) | What it means for you |
|---|---|---|---|
| Tax rate on profit | Your personal rates, 0% to 45% plus 2% Medicare | 25% flat (base rate entity) | Company wins once profit clears your 30% bracket and you can leave money in |
| Set-up cost | Free ABN; business name $45 a year | $636 ASIC registration plus $500 to $1,500 for the paperwork | Company costs about $1,500 up front |
| Yearly running cost | One tax return, $200 to $500 | $342 ASIC review plus company return and accounts, $700 to $2,500 | Budget $1,800 to $2,500 a year extra for a company |
| Who pays if the business owes money | You, with everything you own | The company, unless you signed a personal guarantee | Company protects your home; banks still ask directors to guarantee loans |
| Taking money out | It is already yours | Wages, dividends or a documented loan (Division 7A) | Company money is not your money until it is paid out properly |
| Capital gains discount | 50% after 12 months | None inside the company | Keep appreciating assets out of the company |
| Losses | Offset against your other income (rules apply) | Trapped in the company until it makes a profit | Sole trader is better in a loss-making first year |
Sources: ato.gov.au, individual income tax rates 2026-27 and changes to company tax rates (base rate entity, checked 29 September 2026); asic.gov.au fees from 1 July 2026 as compiled by ausbusinessregister.com.au (checked 29 September 2026); accounting fee ranges from OurTop10’s accountant cost guide, September 2026.
The tax in dollars at three profit levels
Same business, same profit, two structures. In the company column the owner takes a wage and leaves the rest in the company. Personal tax includes the Medicare levy and the low income tax offset; company tax is 25% on what stays in.
| Profit and wage drawn | Sole trader tax | Company: wage tax + company tax | Tax difference this year |
|---|---|---|---|
| $80,000 profit, all drawn | $16,120 | $16,120 + $0 = $16,120 | $0, and the company costs $1,800 more to run |
| $150,000 profit, $90,000 wage | $39,570 | $19,320 + $15,000 = $34,320 | $5,250 saved; $45,000 stays in the company |
| $250,000 profit, $120,000 wage | $83,370 | $28,920 + $32,500 = $61,420 | $21,950 saved; $97,500 stays in the company |
OurTop10 calculation, 29 September 2026, using the 2026-27 resident rates (15% to $45,000, 30% to $135,000, 37% to $190,000, 45% above), 2% Medicare levy, low income tax offset, and the 25% base rate entity company rate. No superannuation, no other income, no small business concessions.
Sole trader vs company calculator
Enter your expected profit and how much you need to draw out to live on. The calculator shows both tax bills for 2026-27 and how much would be left sitting in the company.
On $150,000 profit, drawing $90,000 as wages, a company pays about $5,250 less tax this year than a sole trader, or about $3,408 after the extra running costs. The catch: $45,000 of that stays inside the company and is taxed again in your hands when you take it out.
Guide only. Uses 2026-27 resident rates, Medicare levy, low income tax offset and the 25% base rate entity rate. Ignores superannuation, franking on later dividends, personal services income rules and state payroll tax. Check the result with an accountant before changing structure.
When switching to a company makes sense
A company starts paying for itself when three things are true at once: profit is comfortably above what you need to live on, you expect that to continue, and you would rather grow the business than draw every dollar. Below about $120,000 of profit the extra running cost usually cancels the tax saving. The other trigger has nothing to do with tax: if you employ people, sign contracts, or work in a trade where a mistake can cost more than you own, the separate legal entity is worth the fee on its own.
- Profit under $100,000 and you draw all of it: stay a sole trader.
- Profit $120,000 to $200,000 with money to leave in: a company usually wins, by $3,000 to $15,000 a year.
- Profit over $200,000: a company, and ask your accountant whether a family trust owning the shares fits your situation.
- Any profit level with real liability exposure (building, transport, advice, food): a company.
“People come in wanting a company because a mate has one and they believe it will magically save them paying tax. We start the conversation by explaining that a company provides tax deferral opportunities and asset protection benefits, the tax saving depends on how they deal with their profit i.e. how much of the profit they actually spend. If the answer is all of it, the company does not provide any tax saving over a sole trader. That said post the budget changes the company structure is likely to be the most popular small business vehicle going forward and a good adviser will guide you on how to maximise your outcomes”
Adrian Chaudhary, Lead Adviser, VJC, Sydney
Asset protection: what a company does and does not do
A company shields your personal assets from the company’s ordinary debts: unpaid suppliers, a customer who sues, a lease that goes wrong. It does not shield you from a personal guarantee, and most banks and landlords will ask a director to sign one. It also does not protect you from director penalty notices for unpaid PAYG withholding, GST and super, which the ATO can pursue against directors personally. So the protection is real but partial, and it works best alongside proper insurance rather than instead of it.
How switching from sole trader to company works
- Register the company with ASIC ($636) and get its own ABN, TFN and GST registration.
- Open a company bank account. Company money and your money must never mix.
- Transfer the business assets. The small business restructure rollover can let you move them without a capital gains tax bill if you qualify.
- Tell customers, suppliers and your insurer the new entity name and ABN. Re-sign contracts.
- Set up payroll for yourself, including super and single touch payroll reporting.
- Cancel the sole trader GST registration once the last BAS is lodged.
Budget two to four weeks and $1,500 to $3,000 in professional fees for the switch, more if there are contracts to renegotiate.
What to do next
Run your own numbers in the calculator above, then take them to an accountant who does structuring, not just returns. The OurTop10 shortlists of vetted Sydney accountants, Melbourne accountants and Brisbane accountants note which firms specialise in business structuring. Our guide to accountant fees tells you what that advice should cost, and the income tax calculator handles the personal side in more detail.
FAQs
Is it better to be a sole trader or a company in Australia?
A sole trader is better when profit is under about $100,000 or you draw all of it, because it is cheaper to run and losses offset your other income. A company is better once profit is well above what you live on, or when you need protection from business debts.
How much tax does a company pay in Australia?
25% on every dollar of profit for a base rate entity, which is a company with turnover under $50 million and no more than 80% of its income from passive sources. Larger companies and passive investment companies pay 30%.
Can I pay myself a wage from my own company?
Yes, and for most owners it is the main way money comes out. The wage is a deduction for the company, you pay normal personal tax on it, and the company must pay super and report it through single touch payroll like any other employee.
What happens to the profit I leave in the company?
It is taxed at 25% and stays there. When you later pay it out as a dividend, you pay personal tax on it with a credit for the 25% already paid, so the end result is close to your personal rate. The benefit is timing: you choose the year, and you can reinvest the untaxed 75% in the meantime.
Do I need an accountant to set up a company?
No, ASIC registration can be done online in an hour. Most people use an accountant anyway because the mistakes, wrong share structure, no shareholder agreement, missing a Division 7A loan agreement, cost far more to fix than the $500 to $1,500 set-up fee.
Can I change back from a company to a sole trader?
Yes, but it is messier than going the other way. The company has to be deregistered or wound up, assets transferred out (with possible capital gains tax), and any Division 7A loans cleaned up first.
Sources
- Australian Taxation Office, Tax rates for Australian residents: ato.gov.au
- Australian Taxation Office, Changes to company tax rates: ato.gov.au
- Australian Taxation Office, Private company benefits, Division 7A: ato.gov.au
- Australian Taxation Office, Small business restructure rollover: ato.gov.au
- ASIC fees 2026-27, compiled by Australian Business Register services: ausbusinessregister.com.au
- Business.gov.au, Business structures: business.gov.au
Megan Birot is OurTop10’s Content Editor. She holds a Certificate IV in Finance and Mortgage Broking (FNS40821) and a Diploma of Finance and Mortgage Broking Management (FNS50322), and checks every guide on the site against current lender policy, government scheme rules and state revenue office thresholds before it goes live. She also runs the editorial reviews on OurTop10’s broker, accountant, conveyancer and buyer’s agent shortlists, and writes all the media releases for the OurTop10 Reports.