How you set up your business affects how much tax you pay, how much paperwork you have, and what happens if things go wrong. There’s no one right answer, and many businesses change structure as they grow.
Sole trader
The simplest and cheapest way to start. You and the business are the same legal entity.
- Business profit is taxed as your personal income, at your individual tax rates
- You use your own tax file number and lodge one personal tax return
- You’re personally responsible for all business debts
- You can employ staff, but you can’t pay yourself a wage
Partnership
Two or more people (or entities) running a business together.
- The partnership lodges its own tax return but doesn’t pay tax itself
- Each partner pays tax on their share of the profit
- Partners are usually jointly responsible for the partnership’s debts
- A written partnership agreement is strongly recommended
Company
A separate legal entity, registered with ASIC, owned by shareholders and run by directors.
- A company that is a base rate entity pays tax at 25%. To qualify, its aggregated turnover must be under $50 million and no more than 80% of its income can be passive income, such as rent or interest. Other companies pay 30%.
- Shareholders’ personal assets are generally protected, although directors have legal duties and can be personally liable in some situations
- More setup cost, ongoing ASIC fees and reporting
- Profits can be kept in the company or paid out as dividends, often with franking credits
Trust
A trustee (a person or a company) holds and runs the business for the benefit of beneficiaries. Family trusts are common for family businesses.
- The trust lodges its own return, and the beneficiaries are taxed on the income distributed to them
- Can offer flexibility in how income is distributed each year
- Set up with a trust deed, which governs what the trustee can do
- More complex and costly to run, and the rules on distributions are strict
Things every business needs to check
- An ABN, and a business name registration if you trade under a name other than your own
- GST registration once your GST turnover reaches $75,000 (or from the start if you drive for a ride-share service)
- Super for any employees, and PAYG withholding from their wages
- Good records: keep them for at least five years
When to review your structure
Common triggers are a jump in profit, taking on a business partner, hiring staff, buying property or equipment in the business, or planning to sell. Changing structure can have tax consequences, such as capital gains tax or stamp duty, so get advice before moving anything.
General information only, written on 11 October 2026. It doesn't take your personal circumstances into account. Rates, grants, tax rules and concessions change, so speak with us before making a decision.
