Using Business Structure to Save on Tax: Sole Trader v Company

Recently I attended a small business function where a panel of entrepreneurs were revealing secrets to their success. One ‘secret’ divulged in the interest of saving $$$ on tax was “to set up your business structure to be in line with your vision”. In a room of over 300 people, I could read their simultaneous thought... “LARGE!” But going ‘large’ with a company structure from the onset may cost you more dollars and time than it’s worth.

The most common reason given by start-ups/small business owners/entrepreneurs wanting to set up a company structure is to save $$$ on tax. But this isn’t a given. Sole Traders, including those operating in a partnership, are taxed as an individual (much like an employee) and so the Individual Tax Rates apply. In 2019 in Australia, a company earning less than 25 million is taxed at the company tax rate of 27.5%.

At a profit of any less then $100k, the tax payable by a Sole Trader will be less than that paid by a company.

Further considerations are laid out in the table below, Sole Trader v Company (PDF version):

Which is most beneficial? Balance My Books WA recommends seeking tax planning advice from a qualified Tax Professional who will consider the needs of the business and the individual.