Published: January 2026
If you are running a successful sole trader business, at some point you will ask the question: should I incorporate?
The answer depends on your specific circumstances. There is no magic revenue number that applies to everyone. But there are clear signals that the switch makes sense, and understanding the trade-offs helps you make an informed decision.
This guide walks through the practical considerations: when incorporation typically makes sense, what changes when you switch, and how to avoid common mistakes in the process.
As a sole trader, you and your business are legally the same entity. Your business income is your personal income. You are personally liable for business debts. There is no separate legal structure.
A company is a separate legal entity. It has its own Tax File Number, its own bank accounts, and its own legal obligations. You become a director and shareholder, but you and the company are distinct.
This distinction matters for three main reasons: taxation, liability, and credibility.
The primary tax difference is how income is taxed.
As a sole trader, your business profit is added to your personal income and taxed at individual marginal rates. For the 2025-26 financial year, these rates are:
Plus the 2% Medicare levy on most income.
A company, by contrast, pays tax at a flat rate. For base rate entities (companies with turnover under $50 million and less than 80% passive income), the rate is 25%. Other companies pay 30%.
The crossover point where company tax becomes more attractive depends on your personal circumstances, but a common rule of thumb is that incorporation starts making sense when your taxable business income consistently exceeds $140,000 to $190,000. At that level, the difference between paying 37-45 cents on each additional dollar versus 25 cents becomes meaningful.
Below $100,000 to $120,000 in profit, the complexity and cost of a company structure usually outweighs the tax benefit. The sole trader structure's simplicity wins.
However, tax is not the only consideration.
As a sole trader, if your business is sued or incurs debts it cannot pay, your personal assets are at risk. Your house, car, savings, and other personal property can be used to satisfy business liabilities.
A company provides limited liability. If the company is sued or cannot pay its debts, creditors generally cannot pursue your personal assets (with some exceptions for director misconduct or personal guarantees).
This becomes important when:
Many business owners incorporate for asset protection even before the tax benefits become compelling. If you have a family home and are taking on commercial risk, a company structure creates a buffer.
Note that limited liability is not absolute. Directors can be personally liable for certain company debts, including unpaid superannuation and PAYG withholding. And many lenders and landlords require personal guarantees from directors, which removes the protection for those specific obligations.
Some practical business considerations favour a company structure:
These factors are harder to quantify but can matter for your growth plans.
A company brings additional obligations and costs:
Setup costs. ASIC charges $576 to register a company (as of 2025-26). You may also incur professional fees if you use an accountant or lawyer to set up the structure.
Ongoing ASIC fees. Companies pay an annual review fee to ASIC, currently $310 for a proprietary company.
Separate tax return. The company lodges its own tax return, separate from your personal return. This adds accounting fees.
Director obligations. Directors have legal duties including acting in good faith, avoiding conflicts of interest, preventing insolvent trading, and maintaining proper records. These carry personal liability.
Payroll for yourself. If you want to access company profits, you typically pay yourself a salary (subject to PAYG withholding) or take dividends. This adds administrative complexity.
More complex record keeping. Companies must maintain share registers, director registers, minutes of meetings, and comply with various reporting requirements.
For a simple business with modest profits, these costs and hassles can outweigh the benefits. For a growing business with meaningful profits and commercial risk, they are worth the trade-off.
Based on these trade-offs, consider incorporating when:
Incorporation is probably premature when:
If you decide to incorporate, the typical steps are:
1. Register the company. You can do this yourself through ASIC or use a registered agent or accountant. You will need to choose a company name, appoint at least one director, issue shares, and set up a registered office address.
2. Obtain a new TFN and ABN. The company needs its own Tax File Number and Australian Business Number.
3. Register for GST and PAYG. If your turnover exceeds $75,000, GST registration is required. If you will pay wages (including to yourself), you need PAYG withholding registration.
4. Open a company bank account. Keep business finances completely separate from personal finances.
5. Transfer business assets. This can include equipment, intellectual property, customer contracts, and other assets. The transfer may have tax implications, including potential Capital Gains Tax. Get professional advice on this step.
6. Update contracts and registrations. Notify clients, suppliers, and relevant bodies that the business is now operated by the company.
7. Wind down the sole trader structure. Cancel registrations, finalise tax returns, and close bank accounts for the sole trader business.
Transferring assets incorrectly. Moving assets from sole trader to company can trigger CGT and stamp duty if not done properly. This is one area where professional advice pays for itself.
Not updating contracts. If you continue operating under old contracts in the sole trader's name, you may not get the liability protection you expect.
Forgetting about CGT. If your business has built up goodwill or other valuable assets, transferring them to a company at market value can create a capital gain. Plan for this.
Overcomplicating too early. Some advisors push complex structures involving trusts and bucket companies. These have their place, but for many SMEs, a simple company structure is sufficient. Do not overcomplicate until your situation genuinely requires it.
Ignoring ongoing obligations. Setting up a company is the easy part. Maintaining proper records, lodging returns on time, and meeting director duties requires ongoing attention.
You may have heard about discretionary trusts, bucket companies, and other tax planning structures. These can offer benefits for some businesses, particularly around income splitting and asset protection.
However, they add significant complexity and cost. They are not necessary for most small businesses, and poorly implemented structures can create more problems than they solve.
If you are considering these options, get advice from a qualified tax professional who can assess your specific circumstances. Do not implement complex structures just because someone told you it is what successful businesses do.
The tax benefits of a company structure typically become meaningful when taxable profit consistently exceeds $140,000 to $190,000. Below $100,000 to $120,000, the sole trader structure's simplicity usually outweighs any tax savings. However, asset protection and growth plans may justify incorporating at lower income levels.
Base rate entities (companies with turnover under $50 million and less than 80% passive income) pay 25% company tax. Other companies pay 30%.
ASIC charges $576 to register a company. Annual review fees are currently $310. You may incur additional professional fees if you use an accountant or lawyer to assist with setup and structuring.
Not necessarily. Trusts can offer benefits for income splitting and asset protection, but they add complexity and cost. A simple company structure is sufficient for many SMEs. Get professional advice on whether a more complex structure suits your circumstances.
Assets can be transferred from the sole trader to the company, but this may have tax implications including Capital Gains Tax and stamp duty. The method and valuation of the transfer matters. Get professional advice to structure this correctly.
Yes, some people operate multiple structures. However, this adds complexity and you need to be clear about which entity is doing what. It can also raise questions about whether you are genuinely separating activities or just trying to avoid tax.
Scale Suite works with Australian SMEs navigating business growth. Our services include:
We do not provide tax or legal advice directly, but we help you work through the practical and financial considerations and coordinate with appropriate specialists. Contact us at hello@scalesuite.com.au or visit scalesuite.com.au.
This article provides general information about business structures in Australia. It is not tax, legal, or financial advice. Business structure decisions depend on individual circumstances, and we recommend consulting qualified professionals before making changes. Information is current as of January 2026.
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