Disclaimer: This is general information only, not business structuring advice. Business structure decisions involve legal, tax, and commercial considerations unique to your situation. Consult a qualified accountant or business adviser before making changes to your structure.
Quick Comparison Table
The three most common structures in Australia each have distinct characteristics across tax, super, liability, and administration:
| Factor | Employee | Sole Trader (ABN) | Company (Pty Ltd) |
|---|---|---|---|
| Tax rates | Individual marginal (0–45%) | Individual marginal (0–45%) | Flat 25% (base rate entity), otherwise 30% |
| Superannuation | Employer pays 12% SG | Self-funded (optional) | Company pays SG on director salary |
| Personal liability | None (employer liable) | Unlimited personal liability | Limited to company assets |
| Admin burden | Minimal — employer handles tax | Moderate — BAS, tax return, records | High — ASIC fees, separate return, accounts |
| GST | Not applicable | Required once GST turnover reaches $75,000 | Required once GST turnover reaches $75,000 |
| Insurance | Workers comp via employer | Own public liability, PI, income protection | Company holds policies; directors may need D&O |
| Asset protection | N/A | None — personal assets at risk | Strong — personal assets separated |
Employee
As an employee, your employer handles PAYG withholding, superannuation contributions (12% SG), workers' compensation insurance, and payroll tax. You receive the National Employment Standards protections: 4 weeks annual leave, 10 days personal/carer's leave, notice of termination, and redundancy pay.
Employees pay individual income tax at marginal rates from 0% to 45%, plus the 2% Medicare levy. The tax-free threshold of $18,200 applies, and the Low Income Tax Offset (LITO) provides up to $700 in additional relief, phasing out completely at $66,667.
Best for: Workers who value stability, paid leave, employer-funded super, and minimal administrative burden.
Sole Trader (ABN)
A sole trader operates under their own name or a registered business name using an Australian Business Number (ABN). The sole trader and the business are legally the same entity — there is no separation between personal and business assets or liabilities.
Sole traders pay individual income tax at the same marginal rates as employees. Business income is reported on the individual tax return, and deductions for business expenses reduce taxable income. The key differences from employment are:
- No employer super — Super contributions are optional but highly recommended. You can claim a tax deduction for personal super contributions up to the $32,500 concessional cap (FY2026-27)
- GST registration — Required within 21 days once GST turnover reaches $75,000. Below this threshold, registration is optional but may be beneficial for claiming GST credits on business purchases
- BAS lodgment — Quarterly (or monthly) Business Activity Statements reporting GST collected and paid, plus PAYG instalments on expected income tax
- No leave entitlements — Time off means no income. An employee is paid for 4 weeks' annual leave, 10 days' personal leave and public holidays; a sole trader has to fund those days from the days they bill. The Contractor Pay Calculator prices them in
- Business deductions — Home office, vehicle, tools, equipment, professional development, and other business-related expenses reduce taxable income
Best for: Freelancers, contractors, and small operators who want simplicity and full control over their work. The Australian Business Register describes it as the simplest and cheapest business structure, and a successful online ABN application gives you your ABN immediately.
Contractor or Employee?
Not sure if your working arrangement is genuinely contracting or actually employment? Check the key indicators.
Use the Contractor vs Employee CalculatorCompany (Pty Ltd)
A proprietary limited company (Pty Ltd) is a separate legal entity from its directors and shareholders. The company earns income, pays tax, and can hold assets independently. This separation provides asset protection — creditors of the company generally cannot access the personal assets of directors.
The base rate entity company tax rate is 25% for companies with aggregated turnover under $50 million and no more than 80% of assessable income from passive sources such as interest, rent and dividends; other companies pay 30% (ATO, 2021–22 onwards). This flat rate is lower than the top individual marginal rate of 45% + 2% Medicare levy = 47%.
A company may not lower the tax on personal services income (PSI): income produced mainly (more than 50%) from your own skills or effort. If the PSI rules apply, the company must attribute that income to you and it is taxed at your marginal rates (ATO). Check the PSI rules before setting up a company to contract.
Paying Yourself from a Company
Company directors typically pay themselves through a combination of:
- Salary/wages — Taxed at individual marginal rates. The company claims a deduction and must pay 12% SG on the director's salary
- Dividends — Distributed from after-tax profits. Franked dividends carry franking credits that offset the individual's tax liability
- Retained earnings — Profits left in the company are taxed at 25% and can be reinvested or distributed later
Setup and Ongoing Costs
- ASIC company registration and annual review fees (indexed each 1 July; check the current amounts at asic.gov.au)
- Accountant fees for the company tax return, BAS and bookkeeping, which vary with the work involved: get a quote before you set up
- Initial setup: ASIC registration plus initial accounting and bank setup
Best for: Businesses that want asset protection, the ability to retain profits at 25%, and a separate legal entity for clients and contracts, where the income is not personal services income caught by the PSI rules.
Take-Home Pay Comparison
The following tables are our calculation of approximate take-home outcomes at three income levels. The employee column assumes the employer pays SG on top. The sole trader column includes self-funded super at 12%, claimed as a tax deduction. The company column assumes paying a $70,000 salary (our assumption) plus 12% super and retaining the rest in the company.
| At $100,000 Income | Employee | Sole Trader | Company |
|---|---|---|---|
| Gross income | $100,000 | $100,000 | $100,000 |
| Income tax + Medicare | $22,520 | $18,680 | ~$18,320* |
| Super cost | $0 (employer pays) | $12,000 (self-funded, deducted) | $8,400 (on $70,000 salary) |
| Cash in hand | $77,480 | $69,320 | ~$73,280 |
| At $150,000 Income | Employee | Sole Trader | Company |
|---|---|---|---|
| Gross income | $150,000 | $150,000 | $150,000 |
| Income tax + Medicare | $39,570 | $32,760 | ~$30,820* |
| Super cost | $0 (employer pays) | $18,000 (self-funded, deducted) | $8,400 (on $70,000 salary) |
| Cash in hand | $110,430 | $99,240 | ~$110,780 |
| At $200,000 Income | Employee | Sole Trader | Company |
|---|---|---|---|
| Gross income | $200,000 | $200,000 | $200,000 |
| Income tax + Medicare | $59,870 | $49,710 | ~$43,320* |
| Super cost | $0 (employer pays) | $24,000 (self-funded, deducted) | $8,400 (on $70,000 salary) |
| Cash in hand | $140,130 | $126,290 | ~$148,280 |
*Company figures combine personal tax on the $70,000 director salary with 25% company tax on the remaining profit, which stays in the company (so the company “cash in hand” includes after-tax profit you have not yet drawn). Paying it out later as franked dividends tops the tax up to your personal marginal rate. They assume the PSI rules do not apply. The sole trader column deducts the self-funded super as a personal concessional contribution; the fund then pays 15% contributions tax on it. All figures use FY2026-27 individual rates, leave out accounting and ASIC costs, and are simplified illustrations — consult an accountant for precise modelling.
When to Switch Structures
Switching from sole trader to company makes sense when several conditions align:
- Profit you do not need to draw — A base rate entity pays 25% on its profit, against individual marginal rates of 30% to 45% (plus the 2% Medicare levy) on income above $45,000. Profit paid out later as a franked dividend is topped up to your marginal rate, so the saving is on profit left in the company for reinvestment
- Asset protection needs — If your business carries liability risk (client work, physical services, product supply), a company shields personal assets
- Multiple income streams — A company can split income through dividends to shareholders (within tax laws) and employ family members; where the PSI rules apply, personal services income is attributed to the person who earned it instead
- Professional credibility — Some clients and government contracts require engaging with a company rather than a sole trader
Do not switch solely for tax reasons. A company adds accounting fees, ASIC registration and annual review fees, and compliance work (separate bank accounts, company tax returns, director obligations). Get those costs from your accountant and ASIC, and set them against the tax difference the tables above show at your income.
Frequently Asked Questions
How this calculator works▼
Tax comparisons use FY2026-27 individual marginal rates and the Medicare levy from our tax engine (ATO resident rates), and the 25% base rate entity company tax rate the ATO applies from 2021–22 onwards. The take-home tables are our calculation and simplified illustrations: no deductions other than the sole trader's self-funded super, private hospital cover (no Medicare levy surcharge), no accounting or ASIC costs, and, for the company, an assumed $70,000 director salary with 12% SG and the rest retained and taxed at 25%, with the PSI rules not applying. GST and company facts are from the ATO and the sole trader description from the Australian Business Register. This page quotes no accounting-fee estimates or income thresholds for switching structure. Actual outcomes depend on deductions, dividend timing, and individual circumstances. This is general information, not business structuring advice.
Sources & References
- 1Business structures— Australian Taxation Office
- 2Changes to company tax rates (base rate entities)— Australian Taxation Office
- 3Company tax rates 2025–26— Australian Taxation Office
- 4Tax rates – Australian residents— Australian Taxation Office
- 5Super guarantee rates and thresholds— Australian Taxation Office
- 6Registering for GST— Australian Taxation Office
- 7How GST works— Australian Taxation Office
- 8Personal services income: how to attribute PSI— Australian Taxation Office
- 9Contractor vs employee— Australian Taxation Office
- 10National Employment Standards— Fair Work Ombudsman
- 11Sole trader— Australian Business Register
- 12Applying for an ABN— Australian Business Register
Last verified: 9 October 2026. Our content is based on the latest information from official Australian government sources.
Anita Bell
AuthorFounder & Senior Bookkeeper
Accountancy degree (2015); certified in Xero, QuickBooks Online, MYOB, Saasu, Zoho and Reckon One
Anita Bell earned her accountancy degree in 2015 and has worked as a senior bookkeeper with Prime Bookkeeping for over 5 years. This built her skills in Australian and New Zealand tax legislation and industry regulations. She is certified in Xero, QuickBooks Online, MYOB, Saasu, Zoho and Reckon One, and works with payroll and rostering software including Gusto, Deputy, Tsheets and KeyPay. She has strong experience in hospitality, building and construction, financial services, real estate, ecommerce, and medical and health services.
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