Short version: most tradies start as sole traders because it’s cheap and simple. A company can limit your personal liability and may save tax once profits grow, but it brings more paperwork and cost. There’s no single right answer, so talk to your accountant before you switch.
The main structures
Sole trader
You and the business are the same legal person. You get an ABN, report the income on your personal tax return, and pay tax at your personal rates. It’s easy to set up, cheap to run and needs the least paperwork.
Downside: you’re personally liable for business debts and legal claims. If the business can’t pay, your own assets can be at risk.
Company (Pty Ltd)
The company is a separate legal entity. It pays tax on its profits at the company rate, and you’re usually an employee or director paid a wage or dividends. It costs more to set up and run, with ASIC registration, annual fees, separate accounts and a company tax return.
Upside: your personal assets are generally better protected, though directors can still be liable in some situations, and lenders or insurers may ask for personal guarantees. Larger clients and head contractors often prefer working with a company.
Partnership
Two or more people run the business together and share profits. Partners are generally personally liable for the business’s debts, including those the other partner takes on, so a written agreement is important.
Trust
A trust can be used to distribute profits among family members and manage risk, but it’s more complex and the tax rules are strict. It’s usually something to set up with advice from an accountant or solicitor, not by yourself.
Comparing them
| Sole trader | Company | Partnership | |
|---|---|---|---|
| Set-up cost | Low (free ABN) | Higher | Low to medium |
| Ongoing paperwork | Low | High | Medium |
| Personal liability | Unlimited | Generally limited | Unlimited, shared |
| Tax paid | Personal rates | Company tax rate on profits | Partners pay on their share |
| Best for | Starting out, lower profit | Growing businesses, staff, higher profits | Two people working together |
When to think about changing
- Your profits are high enough that the company tax rate could save you money (your accountant can run the numbers).
- You’re taking on staff, larger contracts or higher-risk jobs.
- Head contractors or clients are asking you for a company.
- You want to separate your personal assets from the business more clearly.
Costs and hidden extras
- Registering a company with ASIC and paying the annual review fee
- Accounting, a separate company tax return and often a director’s wage
- Super and PAYG obligations if you pay yourself a wage
- Needing to transfer contracts, licences, insurance, ABN and bank accounts when you switch
Check your insurance too, since policies need to name the right entity. Switching structure can also affect vehicle and equipment finance in progress.
Questions for your accountant
- At my current profit, what’s the tax difference between a sole trader and a company?
- What are the set-up and annual running costs for me?
- How would a switch affect my GST, licences, insurance and contracts?
- Do I need personal guarantees anyway for my finance?
- What happens to my existing assets when I change structure?
How tax works in practice
A sole trader adds the business profit to their other income and pays tax at personal rates. A company pays tax on its profit at the company rate, which is generally lower for small businesses that qualify. But money taken out as wages or dividends is taxed again in your hands, so a company doesn’t automatically save tax. Whether it does depends on your profit, your other income and how much you leave in the business. Your accountant can model it.
Paying yourself
- Sole trader: you take drawings, and there’s no wage or super obligation to yourself.
- Company: you’re usually paid wages (with PAYG and super) or dividends, and these need to be set up properly.
Moving from sole trader to company: the steps
- Get advice on tax, GST and any capital gains consequences.
- Register the company with ASIC and get an ABN and tax registrations for it.
- Open a business bank account in the company’s name.
- Move insurance, licences, vehicle and equipment finance and contracts to the company.
- Update invoices, quotes and your website with the company name and ABN.
Sole trader vs company for tradies: FAQs
Is a company better than a sole trader for a tradie?
Not always. A company can offer better liability protection and sometimes tax benefits at higher profits, but it costs more to run and has more rules. It depends on your situation.
Do I need a company to get bigger jobs?
Not by law, but some head contractors and larger clients prefer or require it.
Can I change from sole trader to company later?
Yes, and many tradies do as they grow. Plan the changeover carefully so licences, insurance and finance carry over.
Does a company protect my personal assets?
Generally it limits your personal liability for business debts, but lenders and landlords often ask for personal guarantees, and directors can still be liable in some cases.
Sources and further reading
- business.gov.au: Australian Government business information
- ASIC: Australian Securities and Investments Commission
- ATO: Income, deductions and concessions for businesses
General information only, not tax, legal or financial advice. The right structure depends on your circumstances, so speak with a registered accountant or solicitor. We may earn a commission if you sign up through links on this site, at no extra cost to you.