Sole Trader vs Company vs Trust: Which Structure Saves You The Most Tax?

Choosing the wrong business structure could be costing you $10,000 or more every year. Here's how to choose the right one.

The Quick Comparison

Sole Trader: Simple But Expensive

A sole trader is the simplest structure. You and your business are the same legal entity. No setup costs, minimal compliance.

The problem: You pay tax at your personal marginal rate — up to 47% plus Medicare levy. Once you're earning good money, this hurts.

Example: $200,000 profit as a sole trader = approximately $60,000 in tax.

Company: The 25% Flat Rate

A company is a separate legal entity. It pays a flat 25% tax rate (for base rate entities), regardless of how much it earns.

Example: $200,000 profit in a company = $50,000 in tax. That's $10,000 saved compared to a sole trader.

The catch: Getting money out of the company triggers additional tax. You need to pay yourself a salary (taxed at personal rates) or dividends (with franking credits). Poor planning here can eliminate the benefit.

Trust: Maximum Flexibility

A trust doesn't pay tax itself — it distributes income to beneficiaries who pay tax at their own rates. This allows income splitting across family members.

Example: $200,000 profit distributed equally to 4 adult family members = approximately $35,000 total tax. That's $25,000 saved compared to a sole trader.

The catch: Trusts are complex. You need a corporate trustee for asset protection. And the ATO scrutinises trust distributions carefully.

When to Change Structure

The right time to restructure is before you need to — not after. Changing structures mid-year can trigger CGT, stamp duty, and other costs.

General guidelines:

• Under $80k profit → Stay as sole trader
• $80k-$150k profit → Consider a company
• $150k+ profit → Review trust structures
• Multiple income sources or investments → Trust is often best