Sole Trader vs Company vs Trust: Which Structure Actually Saves You Money?

1. The Sole Trader: Simple, But Expensive at Scale

Most people start here because it's the easiest and cheapest way to get going. You use your personal TFN, report business income on your individual return, and pay tax at your marginal rate.

The problem? Once you're earning above $120 K, you're paying 37 cents on every additional dollar. At $190 K+, it's 45 cents. There's no separation between you and the business, which means no income splitting, no retained earnings strategy, and limited asset protection.

Best for: side hustles, freelancers earning under $100 K, businesses just getting started.

2. The Company: Flat Tax Rate, Clean Separation

A company pays a flat 25% tax rate (for base rate entities under $50 M turnover). That's a significant saving if your personal rate is higher. You can retain profits in the company, pay yourself a salary, and build a structure that separates your personal and business assets.

The trade-off? More compliance. You'll need to lodge a company tax return, maintain proper records, and potentially deal with Division 7 A if you withdraw money incorrectly.

Best for: businesses earning $120 K+ consistently, those with employees, anyone wanting asset protection.

3. The Trust: Flexible, But Complex

A discretionary (family) trust lets you distribute income to beneficiaries on lower tax rates, including family members, companies, or other trusts. This flexibility is powerful for tax planning, but it comes with complexity and compliance costs.

Trusts don't have a flat tax rate. Instead, the tax rate depends on who receives the distribution. If structured well, this can result in significant savings. But it requires active management and good advice.

Best for: family businesses, property investors, business owners who want income-splitting flexibility.

4. So Which One Should You Choose?

There's no universal answer. The right structure depends on your income level, your growth trajectory, your family situation, and your risk profile. What matters is that someone actually runs the numbers for your specific situation rather than just defaulting to whatever you set up on day one.

5. When to Restructure If you set up as a sole trader three years ago and your revenue has tripled, your structure probably hasn't kept up. Restructuring mid-growth is one of the most common (and most valuable) things we help clients with. The cost of restructuring almost always pays for itself within the first year through tax savings.