# Should a tradie be a sole trader or a company in Australia? > A plain comparison of sole trader and company structures for Australian tradies: tax, liability, cost, and when to switch. Source: https://www.invogo.com.au/resources/sole-trader-vs-company-tradies Category: Running a Business | Published: 2026-10-22 | Author: Invogo Team ## Key takeaways - A sole trader is taxed at personal rates and is personally liable for business debts. - In 2025-26 the ATO company tax rate is 25% for base rate entities and 30% for other companies, with no tax-free threshold. - A company is generally liable for its own debts, but directors often give personal guarantees and can be liable for some tax and super amounts. - Money in a company belongs to the company, so you take it out as wages or dividends, which are taxed in your hands. - Invoices must show the ABN of the entity doing the work, so switching to a company changes the details on every invoice. Most tradies start as a sole trader because it is quick and cheap, and move to a company when profit grows or the jobs get risky enough that personal liability worries them. A sole trader pays tax at personal rates and is personally liable for business debts. A company pays a flat rate (25% for most small businesses in 2025-26) and is generally liable for its own debts, but costs more to run. ## What is the difference between a sole trader and a company? A sole trader is you, trading under your own name and ABN. A company is a separate legal entity that you own and direct. That one difference drives everything else: tax, liability, paperwork and cost. | | Sole trader | Company (Pty Ltd) | |---|---|---| | Who owns the business | You, personally | The company (you hold shares) | | Tax | Business income is taxed with your personal income | The company pays its own tax | | Tax-free threshold | Yes, $18,200 for residents | No | | Liability for debts | You, with your personal assets | Generally the company | | Set-up | Free ABN | ASIC registration, plus ABN and TFN for the company | | Ongoing admin | Individual tax return | Company tax return, ASIC annual review, separate accounts | | Taking money out | Just draw it | Wages, director fees or dividends | Source for the comparison: [business.gov.au](https://business.gov.au/planning/business-structures-and-types/business-structures/tax-differences-between-a-sole-trader-and-a-company). ## How is a sole trader taxed? A sole trader pays income tax on profit at normal personal rates, in their own tax return. You do not lodge a separate return for the business. Profit is what is left after business expenses, and the first $18,200 of taxable income is tax-free for residents. There is no "business tax" to set aside separately. The more you earn, the higher the rate on each extra dollar, because personal rates step up as income rises. Put money aside from every invoice for tax, and see the ATO for current personal rates. ## How is a company taxed? A company pays tax on every dollar of profit, with no tax-free threshold. For the 2025-26 income year the ATO sets the rate at 25% for a base rate entity and 30% for other companies. A base rate entity has aggregated turnover under $50 million and no more than 80% of its income from passive sources (like interest or rent). A tradie running an operating business will normally qualify for 25%. Source: [ATO company tax rates 2025-26](https://www.ato.gov.au/tax-rates-and-codes/company-tax-rates/tax-rates-2025-26). The catch is that company money belongs to the company, not to you. To get it out you pay yourself wages (which carry PAYG withholding and super) or dividends, and those are taxed in your hands too. So the lower company rate does not automatically mean you keep more. It mostly helps when you leave profit in the business to grow. ## Does a company protect my personal assets? Mostly, but not completely. A company is generally liable for its own debts, so if a customer sues or a supplier is unpaid, your house and car are usually safer than they would be as a sole trader. Limits to know about: - Banks and landlords often ask directors for personal guarantees, which puts your assets back on the line. - Directors can be personally liable for some things, including unpaid super and certain tax amounts. - A company does not replace insurance. Public liability and tools cover still matter either way. If you work in a higher-risk trade or take on big contracts, this protection is the main reason to incorporate. ## What does it cost to set up and run each one? A sole trader pays nothing to get started beyond applying for an ABN, which is free. A company has to be registered with ASIC, pays an ASIC annual review fee every year, and usually needs an accountant for the company tax return and financial statements. ASIC changes its fees each 1 July, so check the current amounts at [asic.gov.au](https://asic.gov.au). Expect more admin as a company: keeping company records, a separate bank account, and paying yourself properly through payroll. For a one-person tradie with modest profit, that cost can outweigh the tax benefit. ## When should a tradie switch from sole trader to a company? There is no single magic number, but these are the common triggers: 1. **Profit is consistently high**, so the gap between personal rates and 25% starts to matter. Your accountant can model this with your actual figures. 2. **Your jobs carry real risk**, such as large contracts, subcontracting, or work where a mistake is costly. 3. **You are hiring staff** and want a cleaner structure for wages and super. 4. **You want to bring in a partner or sell the business** later. If none of those apply yet, staying a sole trader is usually fine. You can change later, though moving to a company is a restructure with its own paperwork, not a switch you flick. ## Do I invoice differently as a company? Yes, in a few details. Your invoices must show the company name and the company's ABN, not your personal one. Your GST obligations follow the entity: if the company is registered for GST, it must issue tax invoices. See [when to register for GST](/resources/when-to-register-for-gst) and [what a tax invoice must show](/resources/tax-invoice-requirements-australia). Don't invoice from the wrong entity. If you trade as a company but send invoices under your personal ABN, you risk tax confusion, and customers may not know who to pay. If a client ever pays without an ABN on the invoice, [the withholding rules](/resources/invoicing-without-an-abn) can apply. Invogo lets you set your business name and ABN once, then adds them, along with 10% GST, to every invoice and quote automatically. The free plan covers 5 invoices or quotes a month. You can [start free here](/signup) or see [how it works for tradies](/for-tradies). General information, not advice; check with your accountant or the ATO before choosing a structure. ## Frequently asked questions ### Can I change from sole trader to a company later? Yes. You register a new company with ASIC, get an ABN for it, and move your work and assets across. It is a restructure, so talk to your accountant first. ### Do I need a new ABN if I set up a company? Yes. A company is a separate entity and needs its own ABN and tax file number. Your sole trader ABN stays with you personally. ### Is a company cheaper to run than a sole trader? No. A company has ASIC fees, a company tax return and more admin, so it costs more to run than a sole trader. It pays off when profit or risk is high. ### Do I need an accountant to be a sole trader? Not required, but most tradies use one for tax returns, BAS and planning. It matters more once you are earning well or registered for GST. ## Sources - [Tax differences between a sole trader and a company (business.gov.au)](https://business.gov.au/planning/business-structures-and-types/business-structures/tax-differences-between-a-sole-trader-and-a-company) - [Company tax rates 2025-26 (ATO)](https://www.ato.gov.au/tax-rates-and-codes/company-tax-rates/tax-rates-2025-26) - [Company tax rate changes (ATO)](https://www.ato.gov.au/tax-rates-and-codes/company-tax-rate-changes)