Sole Trader vs Pty Ltd for Tradies (2026 Switch Guide)

Executive Summary

Should you switch from sole trader to a Pty Ltd company?

The tax hook everyone repeats is misleading: a company's flat rate only saves you tax on profit you leave in the business, not the money you take home
As a sole trader you get the tax-free threshold and low early rates, so at modest profit you are often cheaper off than a company
Switching is not just a form: it means a new ABN, a new company registration, and reissuing your licence, insurance, contracts and bank account
The real reasons to switch are usually asset protection and taking on staff, not tax
Run your actual numbers with an accountant before you spend a cent

If you are just going out on your own, start with our subbie to your own trade business guide. For the standing compliance list, see tradie legal requirements in Australia. Either way, a free Google Business Profile audit shows where your business stands online right now.

Quick heads up. This is general information for Australian tradies, not tax, legal, or financial advice. Rates, fees, and thresholds are current for the 2026-27 year and they change. Every tradie's numbers are different, so confirm the detail with the official source linked for each point and talk to a registered accountant about your own situation before you switch.

Sole trader and Pty Ltd are the two business structures almost every Australian tradie chooses between, and the real difference is simple: as a sole trader you and the business are legally the same person, while a Pty Ltd company is a separate legal entity with its own tax rate and its own liability for debts. That one difference drives everything below, the tax you pay, the assets a claim can reach, and the paperwork it takes to change.

Getting the structure right is one job. Getting found so the phone rings is another, and it is the one that actually pays the bills. If you want a straight read on how your business shows up online while you sort the back office, grab a free Google Business Profile audit. No pitch, just what is costing you calls.

A few numbers worth knowing before you decide:

A base rate entity company pays a flat 25% tax on every dollar of profit. To be a base rate entity your aggregated turnover has to be under $50 million and no more than 80% of your income can be passive income like rent and interest, which is every normal trade business 1.

A sole trader pays personal marginal rates instead, and the 30% rate already kicks in at just $45,001 of taxable income, climbing to 37% and then 45% higher up 2.

Setting up a standard proprietary (Pty Ltd) company costs $636 to register with ASIC 3.

On top of that it costs $342 every year in ASIC review fees just to keep the company on the register 4.

What Is the Actual Difference Between a Sole Trader and a Pty Ltd?

As a sole trader, you are the business. You trade under your own name or a registered business name, the profit is your income, and the debts are your debts. It is the cheapest and simplest way to run a trade: one ABN, one tax return, no separate company to file for.

A Pty Ltd company is a separate legal person that you own (as a shareholder) and run (as a director). The company earns the money, the company owes the debts, and the company lodges its own tax return. You pay yourself out of it as wages or dividends.

That split matters in two practical ways for a tradie:

Tax: company profit is taxed at the flat company rate. Sole trader profit is added to your personal income and taxed at your marginal rate.
Liability: as a sole trader, a debt or a claim can reach your house, your ute, and your savings. With a company, the company generally carries that risk instead of you personally. Generally, not always, more on the exceptions below.

Neither is "better". They suit different stages. Most tradies are right to start as a sole trader and only move when a real trigger shows up.

Which One Pays Less Tax?

This is where the bad advice lives. "Become a company and pay 25% instead of 45%" sounds great down the pub, and it is usually wrong for a working tradie.

Two things get skipped.

First, a company has no tax-free threshold. A sole trader pays nothing on the first $18,200 and low rates for a fair way after that 5. A company pays the company rate on the very first dollar of profit. So at modest profit, the sole trader is genuinely cheaper overall, not more expensive.

Second, the 30% figure is a marginal rate, not your average. The 30% band only starts at $45,001 2, and it only applies to the dollars above that line. The income below it is still taxed at 0% and 15%. So your average tax rate as a sole trader stays well under the company's 25% until your profit gets quite high.

Here is the tax on business profit at a few levels, sole trader against a 25% company, worked on the rates that apply from 1 July 2026, when the old 16% bottom rate dropped to 15% 7. The sole trader column includes the 2% Medicare levy, because that is money you actually hand over. The company figures assume the base rate:

Business profit	Sole trader tax + levy	Company tax (flat 25%)
$50,000	about $6,500	$12,500
$80,000	about $16,100	$20,000
$120,000	about $28,900	$30,000
$150,000	about $39,600	$37,500

Read the bottom row carefully, because it is where the usual advice starts to bend. Up to roughly $135,000 of profit the sole trader is still paying less. Past that, the company rate does come out lower on paper. So where does the company tax saving everyone talks about actually come from?

It only shows up on profit you leave in the company. If you draw the money out to live on, as wages or dividends, it is taxed at your personal marginal rate anyway, and the 25% the company already paid is just credited back. The flat company rate only saves you real tax on the profit you keep inside the business to reinvest, in tools, a second ute, stock, or growth.

So the honest version is this. If you take home nearly everything you earn, a company will not cut your tax bill, and it adds cost. If you are making strong profit and deliberately leaving a chunk in the business, or an accountant is setting up income splitting across a family, that is when the tax argument starts to hold up. That last part is exactly the conversation to have with an accountant, not a blog.

Action: Work out your actual annual profit, not your turnover, and how much of it you take home versus reinvest. Take that one number to your accountant. It decides the tax question faster than any rule of thumb.

When Does Switching to a Pty Ltd Actually Make Sense?

For most tradies the trigger is not tax at all. It is risk. A company is a separate legal entity, which means it can shield your personal assets from a business debt or claim in a way a sole trader structure cannot 6. These are the moments that usually tip the decision.

You are taking on staff or apprentices

The day you put someone else on the tools under your name, your exposure changes. Employees, sites, and other people's mistakes all add risk that, as a sole trader, lands on you personally. A company puts a legal wall between that risk and your home.

The jobs are getting bigger

A $2,000 job going wrong is a bad week. A $200,000 job going wrong, a defect claim, a dispute, a subbie who does not get paid, can reach every personal asset you own if you are a sole trader. As the contract values climb, so does the case for the company carrying that risk instead of you.

Your ute and tools are personal assets on the line

As a sole trader there is no legal line between your work gear and your personal property, because there is no separate entity. A serious claim against the business can, in principle, come after the ute you drive and the tools in the back, along with the house. Under a company, the business assets and liabilities sit with the company.

One important honesty check

A company is not a magic shield. Directors can still be personally chased for unpaid PAYG, super and GST through a director penalty notice, for debts they personally guaranteed (banks and suppliers routinely ask for this), for trading while insolvent, and for their own negligence or safety breaches. So the protection is real and worth having, but it is not a licence to be reckless. Your public liability and other insurance still does a lot of the heavy lifting either way.

Action: If you are about to hire, or you are quoting jobs where a claim could realistically reach six figures, that is the signal to price up a company properly with your accountant.

What Does It Actually Cost to Switch?

This is the part the "just become a company" advice never mentions. The switch is not one form and a fee. It is a stack of small costs and jobs, and you carry both structures for a bit while you move everything across.

The hard fees are the easy part:

ASIC company registration: $636 for a standard proprietary company 3
ASIC annual review: $342 every year afterwards, when you also have to check the company details and pass a solvency resolution 4
Your accountant's set-up fee on top, for the company, the structure, and the extra tax return you now lodge every year

Then the hidden work, which costs more in time and hassle than the fees:

A new ABN. Your sole trader ABN cannot be transferred to the company. The company gets its own new ABN (and its own ACN and TFN), and you cancel the old sole trader ABN once everything has moved across 6.
GST re-registration. GST is tied to the ABN, so if you are over the $75,000 GST turnover threshold you register the new company for GST and cancel it on the old ABN 8. Cancelling your sole trader ABN cancels its GST registration with it 6.
Your trade licence. A contractor licence is held by the legal entity that contracts, so you generally need the licence issued in the company's name before the company can quote and get paid for licensed work.
Home warranty eligibility. Residential builders in most states need home warranty or domestic building insurance eligibility, and it is granted to a specific trading entity. Check with your state's scheme early, because re-establishing eligibility for a brand new company can take longer than the company registration itself.
Insurance. Public liability, tool cover, and any other policies need reissuing in the company's name so the right legal entity is actually covered.
Bank account and invoicing. A company needs its own bank account, and your invoicing and accounting software, your invoice templates, and your payment details all update to the new entity.
Contracts. Existing client and supplier agreements are with you personally, so ongoing ones may need to be reissued or novated to the company.

None of it is hard on its own. Together it is a solid few weeks of admin and a real bill, which is exactly why you do not want to do it a year too early "just in case".

Action: Ask your accountant for an all-in number, the ASIC fee plus their set-up fee plus the extra annual tax return, then weigh that against the actual benefit. If the benefit is "maybe a bit of asset protection someday", it is probably too soon.

How Do You Actually Make the Switch?

Once the decision is made, this is the rough order of play. Your accountant will drive most of it, but knowing the steps helps you plan the timing.

Run the numbers with your accountant first. Confirm the switch is worth it on your actual profit and how you take it home, and get the all-in cost.
Register the company with ASIC. New ACN, directors and shareholders set, roughly the $636 fee for a standard Pty Ltd.
Get the company's ABN and TFN. These are new. The sole trader ABN does not carry over.
Re-register for GST under the new ABN if your turnover is over the $75,000 threshold.
Move your trade licence and home warranty eligibility into the company's name so it can legally contract for licensed work.
Reissue your insurance (public liability, tools, income protection) in the company's name.
Open a company bank account and update your invoicing, accounting software, and any ongoing client and supplier contracts.
Cancel the old sole trader ABN and GST registration once everything has genuinely moved across, not before.

Action: Do it at a natural break, such as the start of a financial year, so your bookkeeping has a clean line between the two structures.

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Frequently Asked Questions

Should a tradie be a sole trader or a Pty Ltd company?

Most tradies are right to start as a sole trader. It is cheaper, simpler, and at modest profit it usually costs you less tax than a company because you keep the tax-free threshold. Move to a Pty Ltd when a real trigger appears, such as hiring staff, taking on much bigger jobs, or an accountant confirming the tax and asset-protection benefit stacks up for your numbers.

Do you pay less tax as a company?

Not automatically. A base rate entity company pays a flat 25%, but only on profit you leave in the business. Money you draw out to live on is taxed at your personal marginal rate anyway. A company also has no tax-free threshold, so at low to moderate profit a sole trader is often cheaper overall. The tax saving mainly helps tradies who reinvest a big share of their profit.

At what income should a tradie switch to a company?

There is no single dollar figure, because it depends on how much profit you take home versus reinvest, not just turnover. The flat 25% only helps on retained profit, so the switch tends to make sense when profit is strong and you are deliberately leaving money in the business, or when asset protection and staff are the real reasons. Get an accountant to run your actual numbers.

How much does it cost to set up a Pty Ltd company in Australia?

ASIC charges $636 to register a standard proprietary company, then $342 every year to keep it registered. On top of that you have your accountant's set-up fee and an extra company tax return each year. There are also the switching costs: reissuing your licence, insurance, contracts, and bank account in the new company's name.

Can I transfer my ABN to a new company?

No. A sole trader ABN cannot be transferred to a company. The company gets its own new ABN, ACN, and TFN, and you cancel the old sole trader ABN once everything has moved across. GST registration is tied to the ABN, so you re-register the new company for GST if you are over the $75,000 threshold.

Does a Pty Ltd protect my house and tools?

It helps. A company is a separate legal entity, so business debts and claims generally sit with the company rather than with you personally, unlike a sole trader where there is no legal line between business and personal assets. It is not absolute, though: directors can still be personally liable for unpaid PAYG, super and GST, for debts they personally guaranteed, for insolvent trading, and for their own negligence.

Is it worth becoming a company just before hiring an apprentice?

For a lot of tradies, hiring is the trigger that finally justifies the switch. Taking on staff adds risk that, as a sole trader, lands on you personally. Doing the switch before or around your first hire is common, but line it up with your accountant so the licence, insurance, and payroll all start under the company cleanly.

References:

This article is general information for Australian tradies, current as of 2026. It is not tax, legal, or financial advice. Rates, fees, and thresholds change over time and vary with your circumstances, so confirm the current details with the official source linked for each point and speak to a registered accountant before you act.

Published by Made 4 Tradies. Built by online experts who understand tradies. Serving Sydney, the Central Coast, Newcastle, and the Hunter.

Sole Trader vs Pty Ltd for Tradies: When to Switch (2026)