# Pty Ltd vs Sole Trader in Australia: Which Should You Choose?

Last updated: 26 April 2026

Most Australian founders should start as a sole trader (lower cost, simpler tax) and switch to a Pty Ltd once profit exceeds A$80,000-A$100,000 or they need limited liability or external investment. Sole traders pay personal income tax (up to 45% plus Medicare); Pty Ltds pay 25% company tax with franking credits available. Pty Ltds cost ~A$571 to incorporate plus annual ASIC fees of A$321.

The structure question is the first thing every Australian founder asks — and one of the most important decisions you'll make. The wrong choice doesn't just cost tax; it affects liability, ability to raise funding, super flexibility, and how your business looks to clients.

This guide compares the two main options for founders, with worked examples at different income levels.

## Quick comparison

| Factor | Sole trader | Pty Ltd |
|--------|-------------|---------|
| Setup cost | A$0–A$50 | A$571 (ASIC) |
| Annual ASIC review | N/A | A$321 |
| Tax rate | Personal marginal (0–45% + 2% Medicare) | 25% (base rate) or 30% |
| Personal liability | Unlimited | Limited to share capital |
| Setup time | Minutes | 1–2 days |
| Compliance burden | Low | Moderate |
| Super for owner | Not required (voluntary) | Required (SG on salary) |
| Loss treatment | Offset against other income | Carried forward in company |
| Investor-ready | No | Yes |

## How each structure is taxed

### Sole trader

You and the business are the same legal entity. Profit flows directly to your personal tax return. You pay:

- **Personal income tax** at marginal rates (FY26):
  - 0% to A$18,200
  - 16% to A$45,000
  - 30% to A$135,000
  - 37% to A$190,000
  - 45% above
- **Medicare Levy** 2% on most income
- **Medicare Levy Surcharge** 1–1.5% if no private health and high income
- **PAYG instalments** quarterly (after first year)
- **GST** if turnover ≥ A$75,000

### Pty Ltd

The company is a separate legal person. The company pays:

- **Company tax** at 25% (base rate entity) or 30%
- **GST** quarterly via BAS
- **PAYG instalments** quarterly
- **Super Guarantee** on any wages (including director's salary)
- **FBT** on any benefits provided

When the company pays profit to you, you pay personal tax on:

- **Salary** at marginal rates (with PAYG withholding by company)
- **Dividends** at marginal rates, with **franking credits** for company tax already paid

## Worked example: A$80,000 profit

Single founder, A$80,000 net profit:

### As a sole trader

| Item | Amount |
|------|--------|
| Net business income | A$80,000 |
| Income tax (16% on A$26,800 + 30% on A$35,000) | A$14,788 |
| Medicare Levy 2% | A$1,600 |
| **Total tax** | **A$16,388** |
| **Net cash to founder** | **A$63,612** |

### As a Pty Ltd (full salary strategy)

| Item | Amount |
|------|--------|
| Pre-salary profit | A$80,000 |
| Pay full A$80,000 as director's salary (claim PAYE) | – |
| Less: PAYG withholding (income tax via STP) | A$14,788 |
| Less: Medicare Levy 2% | A$1,600 |
| Less: Super Guarantee 11.5% (paid to fund) | A$9,200 |
| **Cash to director** | **A$54,412** |
| Plus: super in fund | A$9,200 |
| **Total economic value** | **A$63,612** |

Same result for personal cash, but **A$9,200 locked in super** until age 60 (with significant tax advantages on the way out). Plus the company costs A$321 ASIC + ~A$1,500 accountant fees.

**Verdict at A$80k: sole trader wins on simplicity.** Pty Ltd makes sense only if you value liability protection or the super lock-up.

## Worked example: A$200,000 profit

### As a sole trader

| Item | Amount |
|------|--------|
| Net business income | A$200,000 |
| Income tax (per 2026 brackets) | A$57,488 |
| Medicare Levy 2% | A$4,000 |
| Medicare Levy Surcharge 1.25% (no private cover) | A$2,500 |
| **Total tax** | **A$63,988** |
| **Net cash** | **A$136,012** |

### As a Pty Ltd (salary + retain + dividend mix)

A common strategy: pay yourself a salary up to the next tax bracket boundary, retain some profit, and pay a small dividend.

| Item | Amount |
|------|--------|
| Salary A$120,000 + super 11.5% (A$13,800) | – |
| Personal tax on salary (~A$30,000) | A$30,000 |
| Net salary | A$90,000 |
| Profit retained: A$200,000 – A$120,000 – A$13,800 = A$66,200 | – |
| Company tax 25% on A$66,200 | A$16,550 |
| Profit kept in company (retained earnings) | A$49,650 |
| **Total tax (year 1)** | **~A$46,550** |
| **Cash + super in year 1** | **A$103,800** |
| **Plus retained in company for future** | **A$49,650** |

The Pty Ltd structure saves **A$17,438 in year-one tax** and parks A$49,650 in retained profit at the lower 25% company rate. When eventually distributed via dividend, franking credits avoid double taxation.

**Verdict at A$200k: Pty Ltd typically wins** on tax + flexibility, despite the extra compliance cost (~A$2,000/year).

## When each structure makes sense

### Stay sole trader if:

- Annual profit under ~A$80,000
- Single owner with no employees
- Low liability risk (consulting, freelance writing, knowledge work)
- No plans to raise external investment
- Income roughly matches personal lifestyle needs (no retained profits desired)

### Go Pty Ltd if:

- Annual profit over ~A$80,000–A$100,000
- Multiple founders / shareholders
- Liability risk (clients suing, physical product, employees)
- Plans to raise investment (VCs and angels need shares to invest in)
- You want to retain profit at 25% rather than push it through personal tax
- Asset protection is important (e.g. you have personal investment property)

## The "discretionary trust" alternative

Some Australian advisors recommend a **discretionary (family) trust** as an alternative to a Pty Ltd. Key features:

- **Income splitting** between family members on lower marginal rates
- **CGT discount** flow-through (50% on assets held > 12 months)
- **Asset protection** similar to a company

But:

- **No CGT discount** for income (only capital)
- **Trust beneficiaries can be challenged** in tax disputes
- **Setup costs higher** (~A$1,500 with accountant)
- **Annual compliance higher** (separate trust tax return + corporate trustee)

For most owner-managed businesses, a Pty Ltd is simpler. Trust structures are best for asset-rich founders, family businesses, and certain investment-heavy structures.

## Switching from sole trader to Pty Ltd later

You can transition. The ATO's [Small Business Restructure Rollover (s328-G)](https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/concessions/small-business-restructure-rollover) lets you transfer business assets from sole trader to Pty Ltd without triggering immediate CGT, provided:

- You're a small business (turnover < A$10m)
- Same ultimate economic ownership before and after
- Genuine restructure, not for tax avoidance

The transition typically costs A$1,500–A$3,000 in accountant fees and a few weeks of administrative time. Plan it for the start of a financial year for cleanest reporting.

## Other considerations

### Working with overseas clients

Both structures can invoice overseas clients in any currency. Pty Ltd often looks more "real" to international clients used to corporate structures.

### Hiring employees

Both structures can employ. A sole trader hiring requires the same payroll setup as a Pty Ltd — STP, super, workers comp.

### Selling the business

Selling a sole trader business is a sale of assets, generally CGT-eligible. Selling a Pty Ltd is often a sale of shares, which can attract CGT discount and potentially qualify for the **15-year exemption** or **50% active asset reduction** under the small business CGT concessions. Pty Ltd is generally more tax-efficient on exit.

## How AccountsOS handles both

AccountsOS is live in Australia and supports both sole traders and Pty Ltds:

- Sole trader: simple bookkeeping, BAS lodgement, PAYG instalment tracking, year-end income tax return prep
- Pty Ltd: full company workflow including STP, SG, BAS, PAYG instalments, ASIC annual review, company tax return prep
- One login switches between entities — useful for founders running both a personal sole trader practice and a Pty Ltd for a separate venture

[Try AccountsOS free](/signup) or read about [AccountsOS in Australia](/au).

## Related reading

- [Company tax in Australia: 25% vs 30% explained](/blog/company-tax-australia-25-vs-30-percent)
- [Quarterly BAS and GST guide](/blog/quarterly-bas-gst-pty-ltd-guide)
- [Superannuation Guarantee 2025: 11.5% to 12% transition](/blog/superannuation-guarantee-2025-12-percent)
- [Single Touch Payroll Phase 2 for small business](/blog/single-touch-payroll-phase-2-small-business)