Choosing between operating as a sole trader or registering a company is one of the most consequential decisions an Australian small business owner makes. It affects how much tax you pay, how you pay yourself, what you can claim, your legal liability, and your ability to bring in investors or eventually sell the business. Most people make the decision based on what their accountant suggests at setup — often without ever running the actual numbers themselves.

This calculator changes that. Enter your expected annual business profit and see the exact tax outcome under each structure side by side — what you pay, what you keep, and which structure results in less tax at your income level.

What This Calculator Does

The Sole Trader vs Company Tax Calculator takes your annual business profit and applies the current Australian tax rates for each structure. For the sole trader, it calculates income tax using the individual marginal rate brackets, applies the Low Income Tax Offset where applicable, and adds the Medicare levy. For the company, it applies the 25% base rate that applies to most small businesses under the base rate entity rules.

The result is a direct dollar comparison — how much tax each structure produces on the same profit figure, the effective rate as a percentage, and how much you retain after tax under each option. It also produces a visual bar comparison so the gap between the two structures is immediately clear at a glance.

The tool does not factor in what happens when you extract money from a company as salary or dividends, because that calculation depends on your personal circumstances and how you structure distributions. What it shows is the first-order tax position — the comparison that should anchor any conversation you have with your accountant about structure.

Sole Trader Tax in Australia

As a sole trader, your business income is treated as personal income. There is no separation between you and the business for tax purposes — every dollar of profit gets added to your individual tax return and taxed at your marginal rate.

Current Sole Trader Tax Brackets

The Australian individual income tax brackets mean sole traders pay nothing on the first $18,200, 19% on income between $18,201 and $45,000, 32.5% between $45,001 and $120,000, 37% between $120,001 and $180,000, and 45% on anything above that. The Medicare levy adds 2% on most income above the low-income threshold. The Low Income Tax Offset reduces the tax bill for lower earners but phases out entirely above $66,667.

Advantages of the Sole Trader Structure

The key advantage of being a sole trader is simplicity. There is no separate company tax return, no ASIC fees, and no dividend decisions to make. Losses can generally be offset against other personal income. And if your profit is below around $45,000, the progressive rate structure means your effective tax rate is lower than the flat company rate.

Disadvantages of the Sole Trader Structure

Once profit consistently exceeds $45,000, every additional dollar is taxed at 32.5% or higher — well above the company rate. At higher income levels this gap compounds significantly. There is also no liability protection — your personal assets are fully exposed to business debts and legal claims.

Company Tax in Australia

A company is a separate legal entity from its owners. It lodges its own tax return and pays tax at a flat rate on its profits. For most small businesses with annual turnover under $50 million that qualify as base rate entities, that rate is 25%.

The Base Rate Entity Company Tax Rate

The flat 25% rate is the core of the company tax advantage. At a profit of $120,000, a sole trader pays 32.5% on every dollar above $45,000. The company pays 25% on all of it. The gap is real and it grows as profit increases. By $200,000 in profit, the difference between paying 45% on the top slice as a sole trader versus 25% across the board as a company is material enough to justify the additional compliance cost of the structure.

Extracting Money from a Company

The profit inside a company after tax belongs to the company, not to you personally. To access it you need to either pay yourself a salary — which is deductible to the company but taxable to you as an individual — or pay dividends, which come with franking credits attached. The tax planning decisions around extraction are where a good accountant genuinely earns their fee, and why the company advantage is most powerful for business owners who want to retain and reinvest profits rather than draw everything out each year.

Sole Trader vs Company — The Break-Even Point

At low profit levels — generally below $40,000 to $45,000 — the sole trader structure produces less tax than a company. The progressive brackets and the Low Income Tax Offset combine to produce an effective rate below 25%.

Above that range the company rate starts to win. By $80,000 in profit the company is producing meaningfully less tax at the entity level. By $120,000 the saving is significant. By $200,000 and above the difference is large enough that it typically justifies the administrative cost of running a company several times over.

This is why most accountants recommend the company structure for any business expecting to generate consistent profits above $80,000 to $100,000 per year — or for any business where the owner wants to retain profits rather than drawing everything out annually.

When a Sole Trader Structure Makes More Sense

Despite the tax advantage of the company structure at higher income levels, there are situations where remaining a sole trader is the right call.

Early Stage and Low Profit Businesses

If your business is in its early stages and generating modest profit, the compliance costs of running a company — ASIC annual fees, separate bookkeeping, company tax returns — can outweigh the tax saving. At $40,000 profit the tax difference is minimal and the simplicity of the sole trader structure has genuine practical value.

Businesses Generating Losses

If your business generates losses, particularly in the early years, a sole trader structure generally allows you to offset those losses against other personal income. Losses inside a company are quarantined and can only be applied against future company profits — they cannot reduce your personal income tax in the same year.

Freelancers and Solo Contractors

If you are a freelancer or contractor with a single main client and no intention of building a business with employees, assets, or eventual sale value, the company structure adds complexity without proportionate benefit. Many professionals in this situation are also better served by reviewing whether the personal services income rules affect how their income is taxed regardless of structure.

When the Company Structure Wins

The company structure becomes the clear choice when profit is consistently above $80,000, when the owner wants to retain earnings rather than drawing them all as personal income, or when the business has plans to bring in shareholders, take on investment, or eventually sell.

The ability to retain profits at the 25% company rate rather than drawing them and paying up to 45% personally creates a compounding reinvestment advantage over time. A business owner who leaves $100,000 in the company after paying 25% tax has $75,000 to reinvest. The same owner as a sole trader at the top marginal rate has $55,000. Over five to ten years that difference is substantial.

The company structure also provides limited liability protection — your personal assets are generally protected from business debts and legal claims, with some exceptions where personal guarantees or director duty provisions apply.

How to Use This Tax Comparison Tool

Enter the profit figure you realistically expect your business to generate in its next full year. If your business is seasonal or variable, use a conservative midpoint rather than your best-case year. The calculator uses current Australian tax rates and the 25% base rate entity company tax rate.

Use the result to understand the structural difference at your income level, then take that number into a conversation with your accountant to get the full picture — including how you would extract money from a company, what the compliance costs look like in your specific situation, and whether your circumstances affect the comparison in ways the tool cannot account for.

Disclaimer

The calculations produced by this tool are based on current Australian individual income tax brackets, the Medicare levy, the Low Income Tax Offset, and the 25% base rate entity company tax rate. They are intended as a general comparison and planning guide only and do not constitute tax advice.

The tool does not account for the tax treatment of salary, dividends, or franking credits when extracting profits from a company. It does not factor in state taxes, payroll tax, the superannuation guarantee, personal services income rules, or any deductions specific to your business. Tax outcomes vary depending on individual circumstances, the nature of business income, and decisions made about profit distribution.

Before making any decision about business structure, speak with a registered tax agent or accountant who can assess your specific situation. Reliable Business Tools may receive a referral fee if you engage a tax professional through links on this page. This does not affect the tool’s calculations, which are based solely on the figures you enter.