Sole Trader vs Company in Australia. Which Structure Pays Less Tax?

Choosing the right business structure in Australia is one of the biggest financial decisions a business owner can make. Get it wrong and you can end up paying more tax than necessary every single year.

The two most common structures for small businesses are sole trader and company. While both have their place, they are taxed very differently.

Here is the clear breakdown so you can understand which one may work better for you.

Why business structure affects how much tax you pay

Your business structure determines:

• How your income is taxed

• When tax is paid

• What deductions you can claim

• Your personal liability

Many business owners start as sole traders because it is simple. The issue is that what works at the start often becomes inefficient as income grows.

How sole traders are taxed in Australia

As a sole trader, all business profit is treated as your personal income.

This means:

• You pay tax at personal marginal rates

• Income can be taxed up to the highest bracket

• There is no separation between you and the business
  

As profits increase, tax increases quickly.

Sole trader structures work best when:

• Income is low to moderate

• The business is simple

• Growth is limited in the short term
  

How companies are taxed in Australia

A company is taxed separately from you as an individual.

Key points:

• Most small companies pay 25 percent company tax

• Profits can be retained inside the business

• Income can be paid to you as salary or dividends

This creates flexibility and control around when tax is paid.

Company structures work well when:

• Profits are increasing

• You want to reinvest in growth

• You want clearer separation between business and personal finances

Which structure usually pays less tax? There is no one size fits all answer, but in many cases:

• Lower income businesses often pay less tax as sole traders

• Growing businesses often pay less tax through a company

• Businesses reinvesting profits benefit most from company structures
  

The tipping point is usually when profit becomes consistently strong and predictable.

Common mistakes business owners make

Some of the most common issues we see are:

• Staying as a sole trader for too long

• Setting up a company without tax planning

• Paying all profits personally when not required

• Ignoring long term growth plans
  

Structure decisions should be reviewed as the business evolves.

How Kantor Advisory Group helps business owners choose correctly

At Kantor Advisory Group, we look beyond setup. We focus on what structure supports your goals now and into the future.

We help clients with:

• Structure reviews and comparisons

• Tax forecasting under different scenarios

• Profit planning and cash flow advice

• Ongoing structure optimisation as income grows
  

The right structure gives you flexibility and peace of mind.

You can view of list of services here.

Final takeaway

Choosing between a sole trader and company structure is not just about tax rates. It is about control, timing, and long term planning.

What works this year may not work next year.

If you are unsure whether your current structure is still right for your business, it is worth reviewing it before it starts costing you.

If you are unsure how much tax you should be setting aside, read our guide on How Much Tax Should a Small Business Put Aside in Australia.