Scope note: this is general financial education, not transactional advice. Setting up, changing or unwinding an entity is executed by your solicitor or chartered tax adviser. We model the tax impact of each option so you can take a clear decision into that conversation. Torch Corporate does not establish, restructure or transfer companies or trusts.
Your business structure is one of the most consequential financial decisions you will make. It affects how much tax you pay, whether your personal assets are protected, how you can distribute profits, and how easily you can grow, sell, or restructure.
There is no one-size-fits-all answer — but there is a set of clear trade-offs to weigh. Our entity structure comparison calculator models the tax outcome of each option side-by-side at your specific profit level using 2025–26 brackets.
This article works through the three main structures, the trade-offs each one brings, the triggers that usually justify a change, and the cost of getting it wrong.
Sole trader
Simplest and cheapest to set up. ABN registration is free. Income taxed at your personal marginal rate using the 2025–26 brackets (0% to A$18,200; 16% to A$45,000; 30% to A$135,000; 37% to A$190,000; 45% above), plus the Medicare levy of 2% above A$28,011.
Key features:
- No asset protection. Your personal assets — house, savings, super (mostly) — are at risk if the business incurs debt or faces legal action.
- You and the business are one legal entity. Business debts are your debts.
- Small business income tax offset — 16% offset, capped at A$1,000/year. Useful at lower income levels.
- Lowest ongoing administration. No separate return, no ASIC fees, no complex accounting.
- Income splitting is hard. Generally only your spouse can be brought in via a partnership, and the partnership has its own rules.
Best for: freelancers, contractors, side businesses, side hustles, and businesses in early stages with profits under ~A$80K where the personal marginal rate stays below the 30% bracket.
Company (Pty Ltd)
Separate legal entity. Set up through ASIC (A$611 registration as at 2025–26 plus annual review fees). Profits taxed at a flat 25% for base rate entities — companies with aggregated turnover under A$50M and no more than 80% passive income. The rate is 30% otherwise.
Key features:
- Limited liability. Personal assets are generally protected from business debts, with two big exceptions: director-guaranteed debt (most bank loans), and director's duties failures (illegal phoenix activity, insolvent trading).
- Profits distributed as dividends. With franking credits attached to reduce double taxation. A fully franked dividend out of a 25% company effectively passes the 25% tax already paid to the shareholder.
- Higher set-up and ongoing cost. ASIC fees, separate company tax return, often a separate bank account and bookkeeping ledger.
- Salary vs dividend planning. You can pay yourself a salary (deductible to the company, taxed at your marginal rate) or take dividends (with franking credits). Generally a combination is optimal.
- R&D and innovation incentives. Some incentives are only available to companies (R&D tax incentive, Early Stage Innovation Company concessions).
Best for: businesses with profits consistently above ~A$100K, businesses needing liability protection (any business with material contract risk or staff), scaling businesses planning to raise capital, and businesses where the 25% flat company rate is below the owner's personal marginal rate.
Discretionary (family) trust
The trust holds business assets for the benefit of beneficiaries (typically family members and a corporate trustee). Trust deed signed and stamped (state stamp duty applies on creation in some states). Trust pays no tax itself — income flows to beneficiaries.
Key features:
- Income splitting. Powerful tool when family members are on lower marginal rates. Distribute to a spouse with no other income, an adult child at uni, or a beneficiary on the 16% bracket.
- Strong asset protection. Especially when combined with a corporate trustee — the trust's assets are protected from a beneficiary's personal creditors and most family-law claims.
- Undistributed income taxed at 47%. The top marginal rate plus Medicare. Trusts are poor for retaining profits — distribute or pay the top rate.
- 30 June distribution minutes are non-negotiable. Must be signed by 30 June each year. Otherwise the trustee gets stuck with the 47% tax on the income — even though the cash may have already been used.
- No franking credits without a family trust election. A trust receiving franked dividends needs to make a Family Trust Election (FTE) to pass franking credits through to beneficiaries; the FTE locks the beneficiary universe to the family group.
- Section 100A scrutiny. The ATO has tightened on distributions to adult-child beneficiaries who don't actually receive the cash. Distribute to who will receive.
Best for: family businesses, businesses with multiple owners related by marriage or blood, businesses needing strong asset protection, professional services businesses, and businesses where income splitting across the family can save more in tax than the trust's administration cost.
The hybrid: company & trust
Many growing businesses end up with a hybrid structure — a trading company owned by a discretionary trust. The company gets the 25% flat tax rate and limited liability; the trust distributes dividends out to beneficiaries on their personal rates.
This is the structure most professional services firms use. It carries higher administration cost (two entities, two returns, more bookkeeping) but it maximises both tax flexibility and asset protection. The break-even is usually around A$200K–A$300K of profit — below that, a sole trader or simple company is cheaper to run; above that, the structure pays for itself many times over.
When to change structure
The triggers most commonly worth restructuring around:
- Taxable income consistently exceeds A$120,000–A$150,000 — the gap between personal marginal rates (30%+ at this level) and the 25% company rate becomes meaningful. Roughly 5–10% saved on every dollar above the bracket boundary.
- Asset protection becomes important — litigation exposure, contracting requirements that demand a company, or growing personal wealth that needs to be insulated from business risk.
- Bringing in investors or partners — investors generally won't take equity in a sole-trader or trust structure. A Pty Ltd is the minimum.
- Planning a sale — buyers prefer to buy company shares (clean transaction, sometimes accessing the 50% CGT discount and small business CGT concessions). Structuring 18–24 months ahead of a sale is materially worth more than restructuring at the time.
- Income splitting opportunities with family on lower brackets — a trust unlocks this; a sole trader or company alone doesn't.
- Expanding interstate or internationally — operating through a company (especially with multiple subsidiaries) is generally easier for state and international compliance than a sole trader spreading across borders.
Important warning: changing structures is not free. It may trigger capital gains tax, GST, stamp duty and professional fees. Always get advice before restructuring — and always model the before/after at 5-year and 10-year horizons, not just year one.
Worked examples — what the calculator shows
Three rough sketches using the entity structure comparison calculator with 2025–26 brackets:
- A$80K profit, single beneficiary. Sole trader tax: ~A$15,800. Company: A$20,000. Trust to one beneficiary: ~A$15,800. Sole trader and trust are equivalent because the trust just distributes to one person on full marginal rates. At this income, sole trader wins on simplicity.
- A$200K profit, two beneficiaries. Sole trader: ~A$60,100. Company: A$50,000. Trust split across two equal beneficiaries: ~A$45,600. The trust wins by ~A$14,500/year over sole trader; A$4,400/year over company. The split is what makes the trust competitive.
- A$500K profit, two beneficiaries. Sole trader: ~A$185,000. Company: A$125,000. Trust split equally across two beneficiaries: ~A$130,000. Above ~A$250K profit per beneficiary, the trust starts to lose ground to the company because each beneficiary moves up the brackets. The hybrid company-owned-by-trust really starts to dominate here.
These are tax-only outcomes. They do not account for asset protection, distribution flexibility, retained earnings, the cost of running the structure, or the CGT/stamp-duty cost of getting from one to another. They are a starting point for the real conversation, not the conclusion.
The cost of getting it wrong
The cost of a sub-optimal structure isn't the tax difference for one year. It compounds:
- Five years of A$10K extra tax = A$50K paid that didn't need to be paid.
- Sale of business as a sole-trader operation rather than company shares can mean missing the small business CGT 50% concession, 15-year exemption, or the active asset 50% reduction — a difference measured in hundreds of thousands.
- Personal liability exposure that costs nothing while business runs smoothly, but costs everything if a single workplace incident, dispute or insolvency event lands.
Equally, changing structure unnecessarily is expensive. CGT on the asset transfer, GST on any going-concern issues, stamp duty in some states (especially Victoria's landholder duty), and professional fees to set up new agreements, leases, contracts and bank facilities.
Where to start
Use the entity structure comparison calculator to model the tax outcome of staying versus changing at your current profit level. Then take the result to a 30-minute discovery call. We'll model the 5- and 10-year view (because year-one tax savings often don't recover the cost of the change), and identify whether a change is genuinely worth the cost — or whether the current structure still fits.
If a change is justified, your solicitor or chartered tax adviser handles execution. We model the impact; they implement the change.
References: ATO — Individual income tax rates 2025–26, Company tax rate (25% base rate entity rules), Trusts, Section 100A reimbursement agreements, Small business CGT concessions. ASIC — Annual review fees, company registration costs. Always confirm specific applicability with a registered BAS Agent or chartered tax adviser before committing to a structural change.
This information is general in nature and does not constitute personal financial or tax advice. Please contact us to discuss your individual circumstances. Tax laws are subject to change; information on this page reflects legislation in effect as of May 2026.