A new financial year often sparks big questions from business owners. One of the most common?
“Is it time to move from sole trader to a company?”
And it’s a good question because your structure determines not just how you pay tax but how well you’re protected, how your business grows, and what kind of future you’re building.
In this blog, I’ll walk you through the five key things you need to understand before leaping.
1. Why Start as a Sole Trader?
Starting as a sole trader makes sense. It’s simple, cheap, and quick to set up. You apply for an ABN, maybe register a business name, and you’re off. Everything you earn is reported in your tax return.
But there’s a trade-off: unlimited personal liability.
If something goes wrong in the business, you’re personally responsible. That means your house, savings, and personal assets are all exposed.
That’s fine at first when things are small and manageable. But as your business grows? The risk rises with it.
2. When Is It Time to Consider a Company Structure?
Most clients I work with hit a natural tipping point, and it’s usually around one of these areas:
Flexibility: You get more options for managing cash, reinvesting profits, and (potentially) saving on tax through strategic planning.
Risk: If your business is growing or you’re hiring staff, a company helps protect your assets with limited liability.
Perception: Larger clients, tenders or government contracts often prefer (or require) you to be a company. It shows you’re serious and credible.
Structure: A company forces you to operate with more precise boundaries, with defined payroll, super obligations, and reporting requirements.
3. Understanding the Differences – Sole Trader vs Company
| Aspect | Sole Trader | Company |
|---|---|---|
| Setup Cost | Low | Higher |
| Legal Liability | Personal assets at risk | Limited liability |
| Tax Reporting | Included in your personal tax return | Separate company and personal returns |
| Superannuation | Optional | Mandatory on wages paid |
| Access to Business Loans | May be limited | Often easier with structure |
| Profit Distribution | All income is yours | Can retain earnings or pay wages/dividends |
One major difference? A company is a separate legal entity.
That means you don’t just ‘take money out’ – you have to pay yourself wages, issue dividends, or track it as a loan (which has tax implications if not appropriately repaid).
4. What About the Small Business Rollover Relief?
If you’re already trading and want to move into a company, the ATO’s Small Business Restructure Rollover Relief might be your best friend.
It allows you to transfer your sole trader business to a company without triggering capital gains tax as long as you meet a few conditions:
- Your turnover is under $10 million
- It’s a genuine restructuring (not just for tax avoidance)
- The economic ownership stays the same (e.g., you own the shares in the new company)
This allows you to transfer goodwill, equipment, clients, and brand without being hit with a massive tax bill.
However, there may still be stamp duty or loan refinances to consider, especially with assets such as vehicles.
5. What Are the Extra Costs of Being a Company?
Let’s be real: switching to a company costs more. You’ll need to budget for:
- ASIC annual fees
- Higher accounting costs
- Separate bookkeeping and tax lodgements
- Compulsory superannuation
- Payroll setup and workers’ comp insurance
- Possible additional software subscriptions and admin
But remember: you’re not just paying for complexity.
You’re paying for protection, credibility, and the ability to scale.
As your business grows, these costs are often outweighed by the benefits, and in many cases, they’re necessary to get to the next level.
Final Thoughts
The decision to transition from a sole trader to a company is a significant one, and it should never be based solely on tax savings.
It’s about protecting what you’ve built.
It’s about setting yourself up to grow.
And it’s about making sure your business serves you, not the other way around.
If you’re considering restructuring this year, please don’t hesitate to reach out. I’ll walk you through your options and make sure you do it the right way, with no nasty surprises later.
Ready to take the next step? Let’s talk.
Or, if you’re still exploring your options, check out the full podcast and subscribe for weekly episodes that help you make better business decisions.
This blog post provides general information only and is not intended as personal financial advice. The information presented here does not take into account your individual financial situation, investment objectives, or particular needs. You should consult with a qualified financial advisor before making any financial decisions based on the information in this post. The author and website owner are not liable for any actions taken based on this general advice.