Sole Trader vs Company vs Trust: Which Structure Saves You More Tax in 2026?

The structure you choose for your business is one of the most consequential financial decisions you will make. It determines how much tax you pay, how exposed your personal assets are if something goes wrong, how much compliance work you deal with each year, and how easy it is to grow, sell, or hand the business on one day. And yet most business owners make this decision once at the start and never revisit it.

In 2026, the tax landscape has shifted enough that a structure which made sense five years ago may not be the most efficient option today. New personal tax rates have taken effect, the company rate remains at 25% for eligible businesses, and the ATO's scrutiny of trust distributions has intensified. If you have not reviewed your structure recently, this guide is a good place to start.

The Sole Trader Structure

A sole trader is the simplest structure available. You and the business are legally the same entity. All business income flows directly into your personal tax return and is taxed at your individual marginal rates. There is no separate legal entity, no ASIC registration, and minimal ongoing compliance costs beyond your standard tax return and BAS obligations.

For someone just starting out, running a side hustle, or operating a low-revenue service business, sole trader is often the right call. The setup is free, the paperwork is minimal, and you retain complete control. You also get access to the small business income tax offset, which allows eligible sole traders to reduce their tax by up to $1,000 per year. This concession is not available to companies.

Where Sole Trader Starts to Hurt

The problem is tax. As your income grows, the progressive nature of personal tax rates works against you. A sole trader earning $120,000 in profit pays tax at up to 37% on a significant portion of that income plus the 2% Medicare levy. A company earning the same amount pays 25%, full stop. The gap on $120,000 of profit is not trivial — it can amount to tens of thousands of dollars in additional tax each year.

The other serious risk is personal liability. As a sole trader, there is no legal separation between you and your business. If a client sues, if a debt cannot be repaid, if a contract goes wrong — your personal assets are on the line. Your home, your savings, your vehicle. For anyone operating in construction, consulting, healthcare, or any field with meaningful liability exposure, this is not an acceptable risk as the business grows.

The Company Structure

A company is a separate legal entity. It has its own ABN, its own tax file number, its own bank account, and its own obligations. As a director and shareholder, you are distinct from the company. This creates legal separation that protects your personal assets from business liabilities, which is one of the primary reasons business owners make the switch.

For the 2025–26 financial year, a company with aggregated annual turnover below $50 million and less than 80% of its income from passive sources is taxed at a flat rate of 25%. Other companies pay 30%. That 25% rate applies to every dollar of profit, regardless of how much the company earns. There are no escalating brackets, no progressive tiers, no Medicare levy at the company level.

How the Tax Saving Actually Works

The company does not make tax disappear. When you eventually take money out of the company as a dividend, you pay personal income tax on that dividend. But because the company has already paid 25% tax, you receive a franking credit for that amount, which offsets your personal tax liability. The real benefit of the company structure is timing and flexibility rather than permanent elimination of tax.

Here is a practical example. If your company makes $200,000 profit and you only need to draw $80,000 to live on, the remaining $120,000 stays in the company taxed at 25%. That is a meaningful saving compared to drawing all $200,000 personally and paying your top marginal rate on the upper portion. The retained profit can fund business growth, equipment purchases, or future investment — with more capital available than if you had paid personal tax rates on the full amount.

The Costs of Running a Company

The company structure comes with real ongoing obligations. You need to register with ASIC, lodge annual company returns, maintain proper financial records, hold director meetings, and file a separate company tax return each year. ASIC's annual review fee applies, and your accounting costs will be higher than a sole trader return because the compliance requirements are more complex. For a business earning $80,000 in profit, these costs may outweigh the tax savings. For a business earning $150,000 or more, they almost certainly do not.

The Trust Structure

A trust is not a separate taxpayer in the same way a company is. It is a legal arrangement where a trustee — either an individual or a corporate trustee — holds and manages assets on behalf of beneficiaries. The trustee controls the trust, but the beneficiaries receive the income. In a discretionary trust, the trustee has the flexibility to decide how much income each beneficiary receives each financial year, and that flexibility is precisely where the tax planning opportunity lies.

If your business operates through a trust and the trust generates $180,000 in profit, the trustee can distribute that income across multiple beneficiaries. For example, distributing $90,000 to you and $90,000 to your spouse means both of you pay tax at lower marginal rates than if all $180,000 were taxed in a single return. The potential saving depends on the income levels of the beneficiaries, but it can be substantial for family-owned businesses where multiple people genuinely participate in the business or receive investment income.

What the ATO Is Watching in 2026

The ATO has significantly tightened its scrutiny of trust distributions, particularly following the updated guidance under Tax Ruling 2022/4 and the practical compliance guideline PCG 2022/2. Distributing income to a low-income beneficiary purely to minimise tax, without genuine economic substance behind that distribution, is an area the ATO actively reviews. Distributions to adult children at university, to related companies at the 25% rate, and arrangements that appear designed only to avoid tax are all on the radar.

Used properly, with genuine beneficiaries and legitimate commercial substance, a trust is a powerful tool. Used carelessly, it is an audit risk. This is not a structure you set up yourself and manage with a spreadsheet — it needs professional guidance every single year at distribution time.

Comparing All Three Side by Side

Feature	Sole Trader	Company	Trust
Tax rate	Personal marginal rates (up to 47%)	Flat 25% (base rate entities)	Distributed to beneficiaries at their rates
Asset protection	None — personal liability	Strong — limited liability	Strong — assets held in trust
Income flexibility	None	Limited (salary or dividends)	High (discretionary distributions)
Setup cost	Free	$500 to $1,500+	$1,000 to $3,000+
Annual compliance	Low	Medium to high	Medium to high
Small business tax offset	Yes (up to $1,000)	No	Yes (for eligible trusts)
Best suited to	Low income, low risk, starting out	Growing businesses, high earners	Family businesses, income splitting

The Question That Matters Most: What Is Your Income?

For most Gold Coast business owners, the income level is the clearest guide to which structure makes sense. Below $80,000 in profit, the compliance costs of a company or trust can easily outweigh the tax savings. Between $80,000 and $120,000, it becomes worth modelling both options. Above $120,000, the tax advantage of a company or trust is almost always significant enough to justify the additional complexity and cost.

These are not rigid lines. Industry, liability exposure, family circumstances, plans for growth, and whether you want to retain profits in the business all affect the calculation. A Gold Coast tradie earning $95,000 with high liability risk might benefit from a company structure for asset protection reasons alone, even before the tax saving becomes compelling. A sole trader earning $130,000 with no family members on lower incomes might find a company works better than a trust in their particular situation.

What Happens When You Want to Change Structure?

Changing structure is possible but it is not always simple. Moving from sole trader to company involves setting up a new entity, transferring clients and contracts, and potentially dealing with capital gains tax on any assets transferred. There may be stamp duty implications depending on the state and the nature of the assets. In Queensland, certain asset transfers on business restructure may qualify for CGT rollover relief, but this needs to be structured carefully to access it.

This is another reason why getting the structure right early — or reviewing it at the right time with proper advice — is more valuable than waiting until a problem forces the issue. A restructure done reactively, under time pressure, is more expensive and more complicated than one planned deliberately.

"The right structure is not the one with the lowest tax rate in isolation. It is the one that balances tax efficiency, liability protection, compliance cost, and your personal circumstances. Getting that balance right is what a good accountant is for."

— Homemax Accounting Team

How We Help at Homemax Accounting

Business structure is one of the most common conversations we have with Gold Coast clients — both when they are starting out and when their circumstances change. We run the numbers properly, compare the after-tax outcomes under each structure for your specific income level and situation, and help you understand what the compliance obligations and costs actually look like in practice before you commit to anything.

If you are unsure whether your current structure is still working for you, or if your revenue has grown significantly in the last few years, a structure review is a worthwhile investment. The tax savings available from getting this right can far exceed the cost of the advice itself.

You can explore our tax advisory services or reach out directly and we will take it from there.