If you’re starting a business in Brisbane, or you’ve been trading for a few years and things are picking up, one question tends to come up more than any other: “Am I even set up correctly?”
It’s a fair question. The structure you choose affects how much tax you pay, whether your house is at risk if something goes wrong in the business, and how easily you can bring in a partner, sell up, or pass the business on later. Yet most business owners set their structure up once, right at the start, and never revisit it – even as the business (and the risk) grows.
This guide walks through the three most common structures in Australia – sole trader, company and trust – in plain English, so you can have a more informed conversation with your accountant.
Sole Trader: Simple, But You Carry the Risk Personally
A sole trader structure means you and the business are legally the same thing. There’s no separation between your personal assets and your business assets.
What this means in practice:
- Setup is fast and inexpensive – you just need an ABN, and you’ll need to register for GST once your turnover passes $75,000.
- You report business income on your individual tax return and pay tax at your personal marginal rate.
- You get the benefit of the tax-free threshold, currently the first $18,200 of income.
- There’s no legal separation between you and the business. If the business is sued or can’t pay a debt, your personal assets – including your home – can be at risk.
Sole trader structures work well for freelancers, tradies just starting out, or anyone testing a business idea before committing to something more formal. Where it becomes a problem is once income grows and your personal tax rate climbs past the company tax rate – at that point, you’re often paying more tax than you need to, with none of the asset protection benefits of a company.
Company: A Separate Legal Entity
When you set up a company, you’re creating a completely new legal “person.” The company owns the assets, signs the contracts, and is responsible for its own debts — not you personally (in most circumstances).
Key points:
- Companies pay tax at a flat rate, generally 25% for base rate entities (small businesses under the turnover threshold) or 30% for larger companies. This can be significantly lower than the top individual marginal rate.
- You’ll need to register with the Australian Securities and Investments Commission (ASIC), maintain a company tax file number, and meet ongoing reporting obligations.
- Directors have legal responsibilities and can, in certain situations (like insolvent trading), still be held personally liable — so “limited liability” isn’t an absolute shield.
- Taking money out of a company isn’t as simple as it is for a sole trader. Money you draw as a director outside of salary or properly declared dividends can trigger something called a Division 7A deemed dividend — a topic worth understanding on its own (we’ve covered it in a separate article, linked below).
Companies suit businesses that are growing, taking on staff, carrying real commercial risk, or where the owners want to retain profits in the business rather than draw everything out each year.
Trust: Flexibility for Income Distribution and Asset Protection
A trust is a different concept altogether – it’s not really a business structure so much as a legal relationship, where a trustee holds and manages assets or income on behalf of beneficiaries.
Why business owners use them:
- A discretionary (family) trust allows the trustee to decide, each year, how income is distributed among a group of beneficiaries – which can help spread income across family members on lower tax brackets, within the rules.
- Trusts can offer a layer of asset protection, since the trust – not any one individual – technically owns the assets.
- They’re commonly used alongside a company (a “company as trustee” structure), combining the trust’s flexibility with the company’s liability protection.
The trade-off: trusts are more complex and more expensive to set up and run than a sole trader or a straightforward company. They also come with their own compliance obligations – trust resolutions need to be made correctly and on time each year, or you can lose the tax benefits entirely. This is an area where working with an experienced advisor really pays for itself, because the rules around trust distributions are strict and unforgiving of mistakes.
So Which One Is Right for You?
There’s no single “best” structure – only the structure that’s right for your situation right now, based on:
- How much you’re earning and whether your personal tax rate is higher than the company rate
- How much risk the business carries (client contracts, staff, equipment, premises)
- Whether you plan to bring in partners or investors
- Your family situation, and whether income splitting would genuinely help
- Your exit plan – are you building something to sell, or to hand down?
It’s also worth remembering that your structure isn’t set in stone. Many businesses start as a sole trader, move to a company as they grow, and later add a trust as their asset protection and tax planning needs become more sophisticated.
How WOW! Advisors Can Help
At WOW! Advisors, we don’t just set up a structure and leave it – we review it regularly as part of our ongoing relationship with clients, because the right structure for you at $80,000 turnover often isn’t the right one at $500,000. If you’re unsure whether your current setup is still working for you, our Business Start Ups and Corporate Services teams can walk through your options, and our Strategic Planning service looks at how your structure fits your longer-term goals.
FAQ
Can I change my business structure later if I start as a sole trader?
Yes, and it’s very common. Many Brisbane businesses start as a sole trader to keep costs low, then transition to a company once revenue and risk increase. There are tax and legal steps involved in the transition, so it’s worth getting advice before making the switch rather than after.
Is a company always better than being a sole trader for tax purposes?
Not always. If your income is modest, the tax-free threshold and lower tax brackets available to individuals can mean a sole trader structure is actually more tax-effective. The company rate becomes more attractive as your income grows past certain thresholds.
Do I need trust if I already have a company?
Not necessarily. Some businesses use a company alone, others use a trust with a company as trustee. It depends on whether income splitting and additional asset protection are relevant to your situation – this is genuinely a case-by-case decision.
How much does it cost to set up a company or trust in Australia?
Costs vary depending on complexity, but generally include ASIC registration fees for a company, and legal/accounting fees to draft trust deeds and structure documents correctly. It’s a worthwhile investment when it’s the right fit – but not something to set up just because it sounds impressive.
What happens to my personal assets if my sole trader business fails?
Because there’s no legal separation between you and a sole trader business, personal assets – including your home, car and savings – can potentially be used to satisfy business debts. This is one of the main reasons growing businesses consider moving to a company or trust structure.
Does a company protect me from all business risk?
No. While a company limits liability in many situations, directors can still be personally liable in specific circumstances, such as trading while insolvent, giving personal guarantees on loans, or breaching director duties. A company reduces risk – it doesn’t eliminate it.
How often should I review my business structure?
As a general guide, review it whenever there’s a significant change – a jump in revenue, taking on your first employee, bringing in a business partner, or changes in your personal or family circumstances. Many businesses find an annual review, alongside their tax planning, keeps things on track.
Who can help me decide on the right structure for my business?
A chartered accountant or business advisor who takes the time to understand your income, risk profile and long-term goals – not just a generic recommendation – is the right person to guide this decision. It’s rarely a decision to make from a template.
