The structure you pick on the day you get an ABN is rarely the structure you should have five years later. A sole trader setup is fine at $60,000 of profit with no staff. It's a problem at $300,000 of profit with a team, a lease and a house in your name.
This guide compares the three main options side by side: tax, protection, cost, paperwork and flexibility. It includes worked numbers at one profit level and a clear list of signs it's time to switch. Partnerships get a short mention in the FAQ below.
What's the difference between a sole trader, a company and a trust?
- Sole trader: you are the business. Same tax file number, same tax return, same legal person. Every debt of the business is your debt.
- Company: a separate legal person registered with ASIC. It owns the business, pays its own tax and has its own debts. You're a director (who runs it) and usually a shareholder (who owns it).
- Trust: a relationship, not a legal person. A trustee (ideally a company) owns the business for the beneficiaries. In a discretionary (family) trust, the trustee decides each year who gets the profit. Our family trust explainer covers how that works.
Many established businesses use a combination: a company runs the business and a family trust owns the company's shares.
Sole trader vs company vs trust: comparison table
| Sole trader | Company | Discretionary trust | |
|---|---|---|---|
| Who pays the tax | You, at your personal rates | The company, at 25% or 30% | The beneficiaries, at their own rates. Undistributed income taxed at 47% |
| Tax on $1 of profit at the top end (2026–27) | Up to 47% incl. Medicare levy | 25% (base rate entity) or 30% while retained | Whatever rate the chosen beneficiary pays |
| Splitting income with family | No | Only by paying wages for genuine work, or dividends to shareholders | Yes, each year, within the deed and the integrity rules |
| CGT discount on selling assets | Yes (50% on growth to 30 June 2027; indexation after) | No | Yes, passed to individual beneficiaries (same 2027 change) |
| Losses | Offset against your other income, subject to the non-commercial loss rules | Stay in the company, carried forward | Stay in the trust, carried forward |
| Personal liability for business debts | Unlimited | Limited, except personal guarantees, director penalties and insolvent trading | Trustee is liable; limited if the trustee is a company |
| Getting money out | It's already yours | Wages, franked dividends or a Division 7A loan | Distributions each year |
| Setup cost | ABN only (free) | ASIC registration plus advice | Trust deed, usually a trustee company, plus advice |
| Ongoing compliance | Your own tax return and BAS | Company tax return, financial statements, ASIC annual review | Trust tax return, financial statements, 30 June resolutions, ASIC fees for the trustee company |
| Proposed 2028 change | None | None | Proposed 30% minimum tax on discretionary trusts (a Bill, not law) |
Business.gov.au has a plain summary of business structures if you want the government's version.
How is each structure taxed?
Sole trader
Business profit is added to your other income and taxed at resident rates. For 2026–27: nil up to $18,200, 15% to $45,000, 30% to $135,000, 37% to $190,000 and 45% above, plus the 2% Medicare levy. If your business's aggregated turnover is under $5 million you may get the small business income tax offset, worth up to $1,000 a year. See the ATO's resident tax rates.
Company
A company pays 25% if it's a base rate entity (aggregated turnover under $50 million and no more than 80% passive income) and 30% otherwise. Most trading small businesses pay 25%. The catch: that's tax on profit kept in the company. When the profit comes out to you as a dividend, you pay your marginal rate, less a credit for the company tax already paid. Our company tax rate guide explains the base rate entity test.
Taking money out any other way, such as using company money for private costs, is caught by Division 7A and treated as an unfranked dividend unless it's on a complying loan. See our Division 7A guide.
Discretionary trust
The trust itself pays no tax if all its income is distributed by a valid resolution by 30 June. Each beneficiary pays tax on their share at their own rate. Distributions to children under 18 are taxed at penalty rates, and paper distributions to adult children who hand the money back are a section 100A problem. Trusts can also distribute to a company beneficiary, a "bucket company", to cap tax on surplus profit. See our bucket company guide.
Worked example: $250,000 of business profit
Hypothetical, 2026–27 resident rates including Medicare levy, before offsets. Super guarantee on wages and running costs are ignored to keep it readable.
Sam runs a profitable business making $250,000. Sam's spouse Alex has no other income and works in the business part-time.
| Sole trader | Company (pays Sam $120,000 salary, keeps the rest) | Trust (distributes $125,000 each to Sam and Alex) | |
|---|---|---|---|
| Sam's personal tax | $83,370 | $28,920 | $30,520 |
| Alex's personal tax | — | — | $30,520 |
| Company tax | — | $32,500 (25% on $130,000) | — |
| Total tax this year | $83,370 | $61,420 | $61,040 |
| Where the after-tax money is | All with Sam | $97,500 is still in the company | With Sam and Alex |
What the table doesn't show:
- The company option leaves $97,500 inside the company. When it's paid out as a dividend, more tax may be due, depending on who receives it and when. It's a deferral unless it comes out later at lower rates.
- The trust option only works if Alex genuinely receives and keeps that $125,000, and if the profit isn't mainly from Sam's personal skills (see personal services income below). It also depends on the deed and on the proposed 2028 trust tax.
- Neither option is free. Both add accounting and ASIC costs that a sole trader doesn't pay.
At $100,000 of profit, by contrast, a sole trader pays about $22,520 before offsets, and the savings from a company or trust are usually too small to justify the extra cost unless there's a real liability risk.
What about personal services income?
If you're a consultant, contractor or professional and most of your income is a reward for your own skills and effort, the personal services income (PSI) rules may apply. They treat the income as yours and tax it at your rates, whatever structure it flows through, unless the business passes the tests to be a personal services business (the results test is the most common way through; there are three others, or an ATO determination). If PSI rules apply, a company or trust mostly adds cost without changing the tax. Check this first. Our page for consultants and agencies covers it in more detail.
Which structure protects your assets best?
| Risk | Sole trader | Company | Trust |
|---|---|---|---|
| Business can't pay its suppliers | Your house and savings are exposed | Company's problem, unless you've given a personal guarantee | Trustee's problem; if the trustee is a company, limited to trust assets |
| You're sued personally (negligence, professional claim) | Exposed | Still exposed for your own negligence; company assets also exposed | Trust assets protected from your personal creditors, if you don't own them |
| Unpaid tax, GST, PAYG withholding or super | Personal debt | Directors can get director penalty notices and become personally liable | Directors of the trustee company can be personally liable |
| Separation | All yours, in the pool | Shares are property | Trust you control can be treated as your property |
A company is the first layer of protection, not the whole answer. Our asset protection strategies guide explains how the layers fit together.
How much does each structure cost to run?
We don't quote a single number, because it depends on the size of the business and the bookkeeping. Here's what drives the cost.
- Sole trader: your individual tax return, BAS if registered for GST, and bookkeeping. The cheapest by a long way.
- Company: a company tax return, financial statements, ASIC's annual review fee, director identification numbers, Division 7A loan administration if you borrow from the company, and dividend paperwork. Check current government charges on ASIC's fees page.
- Trust: a trust tax return, financial statements, the 30 June resolution each year, plus a trustee company (with its own ASIC fee). Often paired with a company, so you're running two or three entities.
At BPAG, the whole group usually sits inside one fixed-price plan. Our pricing page shows the plans.
When should you switch from sole trader to a company or trust?
Use this as a rough guide, not a rule. Each case needs modelling.
| Sign | Why it matters | Usually points to |
|---|---|---|
| Profit consistently above the point where you're paying 37% or more, and you don't need all the cash | Retained profit could be taxed at 25% | Company, or trust with a bucket company |
| You have a spouse or adult children on lower incomes who are genuinely involved in or benefit from the business | Profit can be shared legitimately | Trust, often owning a company |
| You've hired staff, signed a lease or taken on contracts with real liability | Unlimited personal liability is now a real risk | Company |
| You own a house or investments in your name | They're exposed to business creditors | Company, and review who owns the house |
| You plan to bring in a partner or investor, or sell one day | Shares are easier to issue and sell | Company, possibly with a trust as shareholder |
| Income is mainly from your personal effort and PSI rules apply | Structure changes little for tax | Probably stay put unless liability is the concern |
| Profit is modest and steady, low risk | Extra entities cost more than they save | Stay a sole trader |
How switching works
- Model the move: tax now vs later, setup and running costs, stamp duty.
- Set up the new entities: company registration, trust deed (by a solicitor or deed provider), ABN, TFN, GST and PAYG registrations, bank accounts.
- Move the business: assets, goodwill, stock, contracts, leases, staff, insurance and supplier accounts. Moving goodwill and assets is a CGT event, but rollovers and the small business CGT concessions can often reduce or defer the tax.
- Check state taxes: some states charge duty on transferring business assets or land. Our state taxes service covers each state.
- Run it properly from day one: separate bank accounts, wages through payroll, and no mixing of personal and business money.
Should you switch before 30 June 2027?
If you hold business assets that have grown in value and are planning to restructure anyway, doing it before 30 June 2027 may let you use the 50% CGT discount on the transfer, alongside the small business concessions. From 1 July 2027 the discount is replaced by indexation for growth after that date (that's law). A restructure that only makes sense because of the deadline is still a bad restructure, so model it on its own merits first. Our guide to the 30 June 2027 tax changes explains the timing.
Mistakes we see
- Setting up a company and trust for a $70,000 side business. The costs eat the benefit.
- Setting up a company but signing every contract personally.
- Treating the company bank account as a personal one, which creates Division 7A problems.
- Distributing trust income to family members who never see the money.
- Ignoring the PSI rules and assuming a company changes the tax on contracting income.
- Moving a business into a company without dealing with goodwill and CGT.
- Using one company as trustee for every trust in the family.
How BPAG helps
We look at the whole picture: your profit, family, risk, assets and plans. Then we model sole trader, company and trust side by side and give you a clear recommendation. Once a structure is chosen, our structure advice letter agent drafts the advice letter and your accountant reviews and signs it; our CGT agent works through the tax on moving existing assets. A qualified accountant reviews everything before it goes to you. Trust deeds are prepared by a solicitor or deed provider, and we brief them directly. If you're ready to change, our business structure advice service handles the setup, registrations and the first year.
Frequently asked questions
Can I change from a sole trader to a company later?
Yes, and most businesses do. You'll set up the company, get a new ABN and possibly GST registration, move contracts, staff and assets across, and deal with any CGT and stamp duty on the transfer. Rollovers and the small business CGT concessions can often reduce or defer the tax if you're eligible.
Do I need an accountant to set up a company or trust?
You can register a company yourself through ASIC and buy a trust deed online. The setup isn't where the risk is. The risk is in choosing the wrong structure, the wrong shareholders or trustee, or getting the tax wrong when you move an existing business across, all of which cost far more to fix later.
Is a partnership a good alternative?
A partnership splits profit between partners in fixed shares and is simple to run, but each partner is personally liable for all the partnership's debts. It can suit a husband-and-wife business with little risk. Once there's real liability or real profit, a company or trust usually does the same job with more protection.
Does a company or trust help if I'm a contractor paid for my own work?
Often less than people think. If most of your income is a reward for your personal effort or skills, the personal services income rules can tax it as yours whatever structure it goes through, unless you pass the tests to be a personal services business. Check this before you set anything up.
Which structure is easiest to sell?
A company is usually easiest, because a buyer can take the shares and the business carries on unchanged. Selling a sole trader's business means selling the individual assets and goodwill. Each structure has different access to the small business CGT concessions, so plan the exit structure years before you sell.
Which structure do banks prefer?
Banks lend to all three, but for a company or trust they'll almost always want personal guarantees from the directors. That's why a guarantee can undo much of the protection a company gives. Lenders also want to see clean, up-to-date financial statements for the entity.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.