Sole Trader vs Company: How Your Business Structure Impacts Your Taxes

When you’re starting a business in Australia, one of the first big decisions is whether to register as a sole trader or set up a company.

Your business structure affects how you’re taxed, how you lodge your returns, and what tax concessions you can claim. It also influences how you handle income, capital gains, and business admin.

In this article, we’ll walk you through:

• Tax rates: personal vs company
• Lodging your tax return
• Capital gains tax treatment
• Access to small business tax concessions

Need to apply for your ABN? Register online now with Register My ABN – it only takes 5 minutes.

1. Tax rates: personal vs company

Sole traders pay tax at individual tax rates, which are progressive:

• The first $18,200 is tax-free (based on the 2023–24 financial year)
• Income above that is taxed in brackets, up to 45%

Companies pay a flat tax rate:

• Most companies are taxed at 30%
• If your business qualifies as a base rate entity, the rate is 25%

Sole traders benefit from the tax-free threshold, while companies are taxed on every dollar the company earns.

2. Lodging your tax return

Sole traders lodge one return - their individual tax return and report their business income as part of it.

Companies must lodge a separate company tax return, and directors must also submit individual tax returns.

Company returns are more complex and require full reporting of income, deductions, and tax owed. You can learn more about this on the ATO’s guide to company returns.

3. Capital gains tax treatment

Sole traders:

• May be eligible for the capital gains tax (CGT) discount on assets held for 12 months or more
• May also access small business CGT concessions if the criteria is met

Companies:

• Typically do not qualify for the CGT discount
• Pay full corporate tax on any capital gains
• May face additional tax if profits are distributed to shareholders

More information is available in the ATO’s CGT guide.

4. Access to small business tax concessions

Both sole traders and companies may be eligible for small business tax concessions, provided they have an annual turnover under $10 million and operate a business for all or part of the income year.

You can see the full list of concessions on business.gov.au.

Ready to start your business with confidence?

Choosing between a sole trader and company structure can significantly affect how much tax you pay and how you manage your obligations.

If you’re just starting out or want something simple and affordable, a sole trader structure is often the best choice. You can always move to a company later if your business grows.

If you’re ready to start as a sole trader, apply for your ABN online in under 5 minutes.