Sole trader, partnership, company or trust? It is the question every growing tradie hits. The honest answer: a sole trader is cheapest and simplest with zero asset protection, and a company or trust only starts paying for itself once profits are consistently low-six-figures. Here is the trade-off, structure by structure.
The four structures
Sole trader — ABN only, free to set up. One individual return with a business schedule; GST and BAS once over $75k. Taxed at your individual marginal rates (up to 45% plus Medicare). The catch: you are the business — you are personally liable for every debt and claim.
Partnership (2+ of you) — a partnership agreement plus ABN and TFN; low cost. The partnership lodges a return and splits the profit; each partner pays tax at their own marginal rate. Watch the liability: partners are generally jointly and severally liable — one can be pursued for the lot.
Company (Pty Ltd) — ASIC registration, shares, a constitution; a few hundred to low thousands to set up. More compliance: an annual ASIC review fee, a separate company return, director duties under the Corporations Act, and payroll if you pay wages. It is taxed as a separate entity at 25% (base-rate entity — turnover under $50M and ≤80% passive income, which covers most trade businesses) or 30%. Creditors generally pursue company assets, not your personal ones — but not absolutely (see below).
Discretionary (family) trust — a trust deed and a trustee (often a company); similar cost to a company with a corporate trustee. An annual trust return and distribution resolutions each year. The trust generally pays no tax if it distributes all its income, which is then taxed in the beneficiaries' hands — allowing legitimate income-splitting to lower-rate family members. Liability rests with the trustee; a corporate trustee adds a separation layer.
When does a company actually save tax?
The 25% rate sounds great, but the saving only appears if you leave profit in the company:
- Pull everything out as wages and you are taxed at marginal rates anyway — little benefit over a sole trader.
- The advantage shows up when the company earns at 25% and you draw only what you need, parking the rest at 25% instead of a personal 37–45%.
Rules of thumb (guidance, not advice): around $120k–150k taxable profit, parking surplus at 25% starts to beat your marginal rate; at $200k+ the gap is substantial and a company — or a company-and-trust combo — is materially more efficient if you do not need all the cash. A hands-on tradie who withdraws nearly everything gets a modest tax edge — they incorporate mainly for asset protection, perception (bigger contracts, builder and government work) and long-term planning.
Asset protection if you are sued
- Sole trader: you and the business are one legal person — lose a building-defect claim and your personal assets are exposed (subject to bankruptcy protections like super).
- Company: the company is the contracting party, so claims generally hit company assets. Not absolute — directors often sign personal guarantees (suppliers, landlords, banks), are personally liable for their own negligence and WHS breaches, and courts can "lift the veil" for fraud (rare for a well-run trade company).
- Trust with corporate trustee: claimants pursue the trustee; with a properly run trust this ring-fences trading risk and keeps personal assets a step further removed.
Whatever the structure, liability insurance (public liability, PI where relevant, contract works) is still essential — see Public Liability Insurance.
Division 7A — do not treat company money as your own
If you incorporate, learn this one. A director's loan account tracks money moving between you and the company. Division 7A stops owners pulling money out as tax-free "loans" instead of taxable dividends — a non-compliant loan or payment to you can be treated as an unfranked dividend and taxed as your income. The safe pattern: keep company money separate, pay yourself proper wages and/or declared dividends, and only run a director loan under a compliant Div 7A agreement with real interest and scheduled repayments. The ATO treats "repay before 30 June then redraw" washing as ineffective.
Common mistakes
- Incorporating then pulling all profit out — paying for the structure with no tax benefit.
- Forgetting a company's real overheads (ASIC fee, two returns, payroll, admin).
- Treating company money as your own and tripping Division 7A.
- Assuming a company makes you bulletproof — guarantees and your own negligence still bite.
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Keep reading
Need help pricing your work? Read Section 14: Pricing Your Work - day rates, job prices and how to stop underselling yourself.
Finished your apprenticeship? Read our guide: After Your Apprenticeship - the stuff nobody teaches you in college.
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