Sole trader or company? Tax, asset protection, costs and a worked example for an electrician on $150,000 profit.
Why your business structure matters more than your ute
Whether you're a sparky, chippy, plumber or tiler, choosing the right business structure affects how much tax you pay, how well your house is protected if a job goes wrong, and how much admin you deal with every year.
Most tradies start as a sole trader, and that's often the right call. But as income grows, staff come on and bigger contracts land, setting up a company can save thousands in tax and protect what you've built. Here's how sole trader and company compare, in plain English.
Sole trader: simple, cheap and personal
As a sole trader, you and the business are the same legal person. You trade under your own ABN, and business profit is added to your personal tax return.
Pros for tradies
- Cheapest and fastest to set up: just an ABN, plus GST registration once turnover hits $75,000.
- Least paperwork: one individual tax return, no separate company or trust return.
- You keep all the profit and can access cash freely.
- Losses in the early years can usually offset other income, such as wages from a part-time job (subject to the non-commercial loss rules).
- A small business income tax offset of up to $1,000 a year may apply.
Cons for tradies
- Unlimited liability. If a client sues or the business can't pay its debts, your house, car and savings are at risk.
- Personal tax rates climb fast. For 2026–27, income over $135,000 is taxed at 37%, and over $190,000 at 45%, plus the 2% Medicare levy.
- No way to split income with a spouse or family members.
Best for: apprentices going out on their own, tradies starting a side business, and those earning under roughly $100,000–$120,000 profit with low risk.
Company (Pty Ltd): lower tax rate, better protection
A company is a separate legal entity registered with ASIC. You're usually the director and shareholder, and the company owns the business, signs contracts and pays its own tax.
Pros for tradies
- Flat 25% tax rate for small companies (base rate entities), compared with up to 47% personally.
- Limited liability. Business debts and claims generally stay with the company, not your personal assets.
- Looks more established to builders, commercial clients and lenders, and some head contractors prefer it.
- Easier to grow, bring in a business partner or sell the business later.
- Profits can be left in the company to fund tools, vehicles or a slow season at the 25% rate.
Cons for tradies
- Higher setup and running costs: ASIC registration, the annual ASIC review fee, a company tax return and more bookkeeping.
- The money isn't yours to grab. You must pay yourself through wages (with PAYG and super) or dividends. Taking cash out informally can trigger Division 7A loan rules.
- Director duties. You can be personally liable for unpaid PAYG withholding, GST and super under the director penalty regime.
- Banks and suppliers often ask for a personal guarantee, which weakens the asset protection.
- No access to the 50% CGT discount when the company sells assets.
Best for: tradies with steady profits above roughly $120,000, employees on the books, or higher-risk work like building, electrical and commercial contracting.
Sole trader vs company at a glance
| Sole trader | Company (Pty Ltd) | |
|---|---|---|
| Tax rate | Personal rates, 0–45% + 2% Medicare | 25% flat (base rate entity) |
| Asset protection | None, you're personally liable | Good (watch personal guarantees and director penalties) |
| Setup cost | Low: an ABN is free | Medium: ASIC registration and company setup |
| Ongoing admin | Low: one personal tax return | Medium: company tax return, ASIC annual review, payroll for yourself |
| Access to profits | Anytime | Wages or dividends only (Division 7A applies) |
| Paying family | Only a reasonable wage for real work | Wages for real work, or dividends to shareholders |
| Losses | Can offset other income | Stay in the company for future years |
| 50% CGT discount | Yes | No |
| Credibility with builders | Fine for most work | Often preferred for commercial jobs |
| Best stage | Starting out, lower profit | Growing, higher profit or risk |
Which structure suits your trade business?
There's no single best structure. It depends on your profit, risk, family and plans. A typical path looks like this:
- Starting out (profit under about $100,000): sole trader. Keep costs low, build the client base and get good public liability insurance.
- In between ($100,000–$120,000): usually stay a sole trader, but review it each year with your accountant so you can switch at the right time.
- Growing (steady profit above $120,000, staff on board or higher-risk work): a company, for the 25% rate and limited liability.
Example: Jake the electrician, $150,000 profit (2026–27 rates)
| Structure | Approximate tax | How it works |
|---|---|---|
| Sole trader | $39,570 | All $150,000 taxed at Jake's personal rates, plus 2% Medicare |
| Company | $33,240 | $90,000 wage to Jake ($19,320 tax), $10,800 super ($1,620 tax in the fund), $49,200 company profit at 25% ($12,300) |
With a company, Jake pays around $6,300 less tax this year and builds $10,800 of super. The catch: $36,900 of after-tax profit stays in the company. When it's paid out later as a franked dividend, Jake may pay top-up tax depending on his income that year. Extra running costs, such as ASIC fees and a company tax return, are typically $1,500–$3,000 a year.
Simplified figures for illustration only. They ignore offsets, super and other income.
Watch-outs every tradie should know
- Personal services income (PSI). If most of your income comes from one builder for your own labour, the PSI rules may apply. Then a company won't save tax, because the income is taxed as yours anyway. Passing the results test (paid for a result, own tools, fixing defects at your cost) usually avoids this.
- Licensing. In Queensland, the QBCC licence must match your structure. A company needs its own company licence and a nominee supervisor, so plan this before you switch.
- Insurance. No structure replaces public liability, income protection and tool insurance. Asset protection is a second layer, not the first.
- Changing structure later. Moving from sole trader to a company is common, but it can trigger capital gains tax, stamp duty and GST issues. Small business restructure rollover relief may help.
- Contracts, ABN and GST. A new structure means a new ABN, updated invoices, a new bank account and telling your clients and suppliers.
Business structure FAQs for tradies
What is the best business structure for a tradie just starting out?
Usually a sole trader. It's cheap, simple and lets early losses offset other income. Review it once profit grows.
At what income should a tradie switch to a company?
There's no fixed number, but many tradies consider it once profit is steadily above $120,000, or when they take on staff or higher-risk work.
Does a company protect my house?
It helps, but not completely. Personal guarantees, director penalties for unpaid tax and super, and negligence claims can still reach you personally.
Can I pay my wife or partner through my business?
As a sole trader, only a reasonable wage for real work they do. With a company, they can be paid a wage for real work or, if they're a shareholder, receive dividends.
Can I go back to being a sole trader later?
Yes, but closing a company takes time and fees, and moving assets out may trigger tax. It's best to choose with an eye on where your business is heading.
Get the right structure with C&S Accounting Solutions
The right structure can save thousands each year, and the wrong one can cost you just as much. Our Brisbane and Gold Coast based registered tax agents help tradies across Australia with:
- Structure reviews comparing sole trader and company for your numbers
- Setting up your company, including ASIC registration and compliance
- Moving from sole trader to company, with rollover relief where available
- Tax returns, BAS, bookkeeping and payroll for trade businesses
- PSI reviews and year-end tax planning
Not sure which structure is right for you? Book a structure review and we'll run the numbers for your trade business. See our business setup services.
This article is general information only and doesn't consider your personal circumstances. Talk to us before acting on it.