Sole trader vs company for tradies: which is right for you?

As a sole trader, you and the business are the same legal thing. You trade under your own ABN, keep it simple, and report the business income on your personal tax return. It is the fastest and cheapest way to start, which is why most tradies begin here.

You can still have a business name, hire staff and register for GST as a sole trader. The main thing to understand is that there is no legal line between you and the business. Its income is your income, and its debts are your debts.

A company, usually a Pty Ltd, is a separate legal entity that you set up and run. It has its own ABN and tax file number, and it is registered with ASIC. You are typically a director and a shareholder, and the company pays you a wage, a distribution, or both.

Because the company is its own legal thing, it can own assets, sign contracts and take on debt in its own name. That separation is the main reason tradies move to a company, but it comes with more paperwork and more cost to run.

This is the difference people care about most. As a sole trader, there is no shield between the business and your personal assets. If the business owes money it cannot pay, your own savings, and in some cases your house, can be exposed.

A company limits that liability in most cases, because the company, not you personally, carries the debts. It is not a magic wall though. Directors can still be personally liable for things like unpaid employee entitlements, certain tax debts, or anywhere they have signed a personal guarantee. A company also does not replace proper insurance. Check how it applies to you with your accountant, and sort your public liability cover either way.

As a sole trader, profit is taxed at your personal income tax rate, which rises as you earn more. A company pays tax at the company tax rate, which can be an advantage once profits get larger, though the money is generally taxed again when it reaches you personally. There is no single answer here, it genuinely depends on your numbers, so work it through with a registered tax agent or accountant.

Cost and admin cut the other way. A sole trader is cheap and simple: minimal setup, one tax return, less red tape. A company costs money to register and maintain, needs its own tax return, has ongoing ASIC obligations, and usually needs a bookkeeper or accountant in the loop. More protection and possible tax benefits, but more work and more expense.

There is no magic income figure, but tradies often look at a company once profits are consistently solid, once they are taking on bigger or riskier jobs, once they are hiring, or once they want to separate the business from their personal assets. Sometimes it comes down to how a builder or head contractor wants to engage you.

The honest answer is that this is a decision to make with an accountant who can look at your actual numbers and plans. Whichever structure you are on, keeping clean records makes the choice, and the switch, far easier. ONARA Ops keeps your quotes, invoices and jobs in one place, and the optional ONARA Books add-on tracks income, expenses, GST and profit per job, so your figures are ready whenever you sit down with your accountant.