Sole Trader vs Company Structure Calculator Australia

What the sole trader vs company calculator does

The sole trader vs company calculator compares the total Australian tax on one year of business profit under two structures: trading under your own ABN as a sole trader, and running the same business through a company. It is the question almost every growing Australian small business reaches, and the answer is far less obvious than the headline rates suggest.

The comparison is deliberately like for like. The same profit, the same other income and the same deductions run through both paths. What changes is where the profit is taxed: entirely in your personal return as a sole trader, or split between a company return and your personal return once you take a wage and decide how much to distribute.

How a sole trader is taxed

As a sole trader you and the business are the same taxpayer. The net profit of the business is added to any other assessable income you have, and the whole amount is assessed at resident marginal rates. The Low Income Tax Offset reduces the result at lower income levels, and the Medicare levy applies once your income passes the lower threshold.

There is no separate business tax return, no company rate and no distribution decision. Every dollar of profit is taxed in the year it is earned, at whatever marginal rate that dollar happens to fall into. On a strong year that pushes you into the top brackets, the effective rate can climb quickly.

How a company is taxed

A company is a separate taxpayer with its own flat rate. The calculator applies either the base rate entity rate, which is the lower rate available to smaller companies that pass the turnover and passive income tests, or the full company rate for everything else.

Three steps follow. First, any wage or director salary you draw is a deductible expense of the company, so it reduces the company profit and is taxed in your personal return instead. Second, the remaining profit is taxed at the company rate. Third, whatever is left after company tax can either be retained in the company or paid out to you as a franked dividend.

Why imputation cancels most of the difference

Australia does not tax company profits twice. When a franked dividend is paid, the company tax already paid is attached to it as a franking credit. You declare the dividend plus the credit, work out the tax on that grossed-up amount at your marginal rate, and then subtract the credit. Because the credit is refundable for resident individuals, the arithmetic collapses.

Set the payout to 100 per cent in the calculator and you will see it: the company path and the sole trader path produce the same total tax on the same profit. This is the single most misunderstood point in the structure debate, and seeing the two figures land on the same number is more convincing than any explanation.

Where the real saving comes from

The difference appears only when profit stays in the company. Retained profit is taxed once at the flat company rate rather than at your top marginal rate, which can be substantially higher. That is a deferral rather than an exemption, because the tax on the difference falls due when the money is eventually distributed, but a deferral is still valuable.

Retaining profit makes sense when:

• The business needs the cash for stock, equipment or working capital
• Your personal income is already high and will be lower in a future year
• You want to smooth income across good and bad trading years
• Distributions can be timed to a year when your marginal rate is lower

If you need every dollar of profit in your own hands each year to cover living costs, the company gives you very little tax advantage and adds real cost.

Reading the results

The primary figure is the difference in total tax between the two structures. A positive number means the company path costs less this year on the assumptions you entered; a zero or negative number means it does not.

Look past that figure to the supporting numbers. The company tax line shows what the entity itself pays. The personal tax line is your own liability after franking credits, which can be a refund. The retained profit figure is the amount of deferred tax sitting in the company, waiting for a future distribution.

What the calculator leaves out

This is a tax comparison, not a full structural assessment. It does not model superannuation guarantee on a director wage, ASIC annual review fees, the extra accounting cost of a second tax return, payroll tax, workers compensation, Division 7A rules on money you take out other than as wages or dividends, or the loss of the 50 per cent capital gains tax discount on assets held inside a company.

It also assumes a single owner and a fully franked dividend with sufficient franking credits available. Family trusts, multiple shareholders, partly franked dividends and loss carry-forward all change the picture and sit outside this model.

Using the result well

Run the calculation at your realistic profit, then run it again at the profit you expect in two years. Structures are expensive to change, so the decision should be made on where the business is heading rather than on a single year. Move the wage and the payout percentage as well, because those two levers move the answer far more than the choice of entity does.

If the difference is small, the non-tax factors decide. Limited liability, credibility with larger customers, the ability to bring in a partner and the administrative burden all matter more than a few hundred dollars of tax.

All figures are an estimate based on the rates and thresholds you see above and the assumptions described here. This is general information, not tax, legal or financial advice. Talk to a registered tax agent before choosing or changing a business structure.

About This Tool: Sole Trader vs Company

Sole trader vs company: use this tool to get an instant, accurate estimate. The figures follow official ATO guidance and every rate and threshold is kept up to date for 2026. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.