Business Structures in Australia (2026): Sole Trader vs Partnership vs Company vs Trust

Your business structure decides who owns the business, who's liable when something goes wrong, how profit is taxed, and how much paperwork you'll do every year. Australia has four structures that cover nearly every small business: sole trader, partnership, company and trust. This guide compares them side by side for the 2026–27 income year, works through the same A$150,000 profit in each one, explains the 2026 law changes that shift the maths, and sets out when — and how — to switch. It's written for people starting a business and for owners who've outgrown their first structure.

Quick answer

Most Australians start as a sole trader — a free ABN, one tax return, but unlimited personal liability. Two or more owners can form a partnership, which is just as simple and just as exposed. A company costs A$636 to register and A$342 a year, limits liability and taxes retained profit at 25%. A trust adds flexibility and asset protection at the highest cost and complexity.

• Sole traders and partners pay individual rates: 15% to 45% plus Medicare levy

• Companies pay 25% (base rate entity) or 30%

• Trust income is taxed in beneficiaries' hands; a 30% discretionary trust minimum tax is proposed from 2028

• Changing structure later means a new ABN and TFN and possibly CGT and duty

• Choose on profit, risk, number of owners and plans to sell

The four structures compared

The table summarises the differences that matter most. Every structure that carries on an enterprise is entitled to an ABN, and every one must register for GST once turnover reaches A$75,000, so those aren't deciding factors.

The first three rows explain most of the decision. If you are the business, your house is exposed to its debts. If the business is a separate entity, its creditors generally can't reach your personal assets, though directors can be personally liable under the director penalty rules for some unpaid PAYG withholding, GST and super, for insolvent trading, and for any personal guarantee they sign.

Sole trader: the default starting point

A sole trader is an individual running a business. The ATO describes it as the simplest and cheapest way to do business. You use your own tax file number, report business income in the business section of your individual return, and pay tax at individual rates on the total. You control everything, keep all the profit and can stop trading by cancelling your ABN. You can employ staff, but you can't employ yourself, so there's no wage and no super guarantee for you — personal super contributions are optional and usually deductible.

The weaknesses are unlimited liability, a rising tax rate as profit grows (the marginal rate reaches 37% above A$135,000 and 45% above A$190,000, plus the levy), and no way to split income with family. Our sole trader guide covers set-up and the sole trader tax rates guide has worked examples at each income level.

Partnership: two or more owners, still personal

A partnership is two or more people carrying on a business together. It's nearly as cheap as a sole trader: a partnership ABN and TFN, a written agreement, and a partnership return each year. The partnership pays no income tax; each partner is taxed on their share, which spreads the profit across more than one tax-free threshold and set of brackets.

The catch is liability: every general partner has unlimited liability for the partnership's debts, including debts another partner incurs in the ordinary course of the business. Without a written agreement, profits and losses are shared equally. When a partner leaves, the partnership technically dissolves; whether the business can keep its ABN and TFN depends on a continuity clause and the ATO's conditions. Our partnership guide covers agreements, liability and a worked example.

Company: separate entity, limited liability

A company is a separate legal entity registered with ASIC, owned by shareholders and run by directors. It owns its assets and owes its own debts. Every director must have a director ID before being appointed. The company lodges its own return and pays tax at 25% if it's a base rate entity — aggregated turnover under A$50 million and no more than 80% passive income — or 30% otherwise. Our company tax rate guide explains both tests.

The company's money isn't the owner's money. You get paid by salary (deductible to the company, taxed to you, super guarantee payable), by dividends (taxed to you with franking credits for the company tax already paid), or both. Taking money or assets out any other way — a loan, private use of company assets — can be treated as an unfranked dividend under Division 7A unless it's on a complying loan agreement. Companies also have more paperwork: ASIC's annual review, keeping registers and minutes, notifying ASIC of changes, and director duties under the Corporations Act.

The 2026 law changes made companies a little more attractive. Legislation passed in August 2026 reintroduced loss carry-back: for tax years starting on or after 1 July 2026, companies with aggregated turnover under A$1 billion can carry a revenue loss back against tax paid up to two years earlier, limited by their franking account balance. And unlike individuals, trusts and partnerships, companies aren't affected by the replacement of the 50% CGT discount from 1 July 2027 — they never had the discount. Our company registration guide walks through setting one up, and ABN vs ACN explains the two numbers a company holds.

Company costs and rates (2026)

A$636

ASIC registration

Company with share capital

A$342

Annual review fee

Every year

25%

Base rate entity tax

Turnover under A$50 million

30%

Full company rate

Everyone else

Trust: flexibility at a price

A trust is run by a trustee — usually a company set up for the purpose — under a deed, for the benefit of beneficiaries. In a discretionary trust the trustee decides each year how to share the income among the family beneficiaries, who pay tax at their own rates. business.gov.au warns that trusts are expensive and complicated to set up, need formal yearly administration and are hard to change once established.

Trusts suit established, profitable family businesses with adult family members on lower incomes, and owners who want business assets protected from their personal risk. They don't suit start-ups that may make losses, because a trust can't pass losses to beneficiaries. The ATO also watches distributions closely under section 100A. And the government has proposed a 30% minimum tax on the taxable income of discretionary trusts from 1 July 2028; draft legislation was released on 3 September 2026 but it isn't law yet. Our family trust guide covers the costs, rules and proposal in detail.

Worked example: A$150,000 profit in each structure

Here's the same business — A$150,000 profit before paying the owners — in each structure for 2026–27. The owner is a resident with a spouse who genuinely works in the business and has no other income. The company pays the owner a A$90,000 salary plus super guarantee at 12% and keeps the rest. Figures exclude private health and other offsets; Medicare levy is the standard 2%.

A$150,000 business profit, 2026–27

	Sole trader	Partnership (50/50 spouses)	Company (A$90k salary + super)	Discretionary trust (50/50 to spouses)
Business-level tax	—	—	A$12,300 company tax on A$49,200	—
Owners' income tax + levy	A$39,570	A$29,040	A$19,320	A$29,040
Small business offset	− A$1,000	− A$2,000	—	− A$2,000
Tax on super contributions	—	—	A$1,620	—
Total tax now	A$38,570	A$27,040	A$33,240	A$27,040
Profit kept in the business	—	—	A$36,900 (taxed again when paid out)	—
Under the proposed 2028 trust minimum tax	—	—	—	About A$45,000

Business-level tax

Sole trader

—

Partnership (50/50 spouses)

—

Company (A$90k salary + super)

A$12,300 company tax on A$49,200

Discretionary trust (50/50 to spouses)

—

Owners' income tax + levy

Sole trader

A$39,570

Partnership (50/50 spouses)

A$29,040

Company (A$90k salary + super)

A$19,320

Discretionary trust (50/50 to spouses)

A$29,040

Small business offset

Sole trader

− A$1,000

Partnership (50/50 spouses)

− A$2,000

Company (A$90k salary + super)

—

Discretionary trust (50/50 to spouses)

− A$2,000

Tax on super contributions

Sole trader

—

Partnership (50/50 spouses)

—

Company (A$90k salary + super)

A$1,620

Discretionary trust (50/50 to spouses)

—

Total tax now

Sole trader

A$38,570

Partnership (50/50 spouses)

A$27,040

Company (A$90k salary + super)

A$33,240

Discretionary trust (50/50 to spouses)

A$27,040

Profit kept in the business

Sole trader

—

Partnership (50/50 spouses)

—

Company (A$90k salary + super)

A$36,900 (taxed again when paid out)

Discretionary trust (50/50 to spouses)

—

Under the proposed 2028 trust minimum tax

Sole trader

—

Partnership (50/50 spouses)

—

Company (A$90k salary + super)

—

Discretionary trust (50/50 to spouses)

About A$45,000

Sole trader. Tax on A$150,000 is A$31,020 plus 37% of A$15,000, or A$36,570. Add A$3,000 levy and take off the A$1,000 offset: A$38,570.

Partnership. Each spouse's A$75,000 share attracts A$4,020 plus 30% of A$30,000, or A$13,020, plus A$1,500 levy, less A$1,000 offset: A$13,520 each, A$27,040 together.

Company. The salary and A$10,800 super are deductible, leaving A$49,200 of company profit taxed at 25% — A$12,300. The owner pays A$17,520 tax and A$1,800 levy on the salary, and the fund pays 15% on the contribution. Total A$33,240, with A$36,900 retained in the company. That retained profit isn't tax-free: when it's paid as a franked dividend, the shareholder pays tax at their own rate with a credit for the 25% already paid. Paying the spouse a salary for genuine work would lower the total further.

Discretionary trust. Distributing A$75,000 to each spouse gives the same result as the partnership today: A$27,040. Under the proposed minimum tax, the trustee would pay 30% on A$150,000 — A$45,000 — and each spouse's non-refundable credit (A$22,500) would exceed their personal tax, so the family would pay about A$45,000 unless the trust elected fixed distributions or restructured.

The lesson isn't that one structure always wins. A partnership or trust beats a sole trader when there's a genuine second owner or beneficiary. A company wins when the owner doesn't need all the profit now. At lower profits — say A$60,000, where a sole trader pays about A$8,620 — the extra cost of a company or trust usually outweighs any tax saving.

Costs and paperwork each year

Beyond tax, structures differ in what they cost to keep running. A sole trader or partnership pays nothing to ASIC unless it registers a business name (A$47 for one year or A$108 for three). A company pays A$342 every year and a late fee of A$102 if the review fee is up to a month late. A trust with a corporate trustee pays the same company fee, plus the one-off deed cost.

Accounting fees are the bigger difference, and they're set by the market, not the government. A sole trader needs one individual return with business schedules. A partnership needs a partnership return plus each partner's return. A company needs a company return, financial statements, Division 7A checks and the director's personal return. A trust with a corporate trustee needs a trust return, a company return (often nil), trustee resolutions before 30 June and the beneficiaries' returns. Get quotes before choosing — for small profits, those fees can wipe out the tax saving.

When to switch, and how

The usual triggers for moving from sole trader or partnership to a company or trust are: profit regularly above what you need to live on (so you'd benefit from keeping some at 25%); more risk — staff, a big lease, contracts with large damages exposure, or work where a single claim could exceed your insurance; outside investors or new co-owners; and planning a sale, where the structure affects CGT concessions. A rule of thumb many accountants use is to look seriously at a company once profit consistently passes the A$120,000–A$150,000 range — treat that as a starting point for advice, not an official threshold.

Moving from sole trader to a company

1. 1

   Get advice and value the business

   Work out which assets move (equipment, stock, goodwill, the business name) and at what value, and whether rollover relief applies.

2. 2

   Register the company

   Directors need a director ID. ASIC registration is A$636. The company then applies for its own ABN, TFN and GST registration.

   Company registration guide
3. 3

   Transfer the business

   Sign a sale or transfer agreement. Move the business name to the company, assign or renew leases, novate customer and supplier contracts, and transfer licences and insurance.

4. 4

   Move employees and payroll

   Employees transfer to the company as their new employer; set up Single Touch Payroll and super under the company's ABN.

5. 5

   Close off the old registrations

   Cancel the sole trader's GST registration within 21 days if you no longer need it, finalise payroll, and lodge the final business schedules in your individual return.

Tax relief usually makes the move cheaper. Individuals and partners transferring business assets to a company they wholly own can often defer capital gains under the CGT rollover for transfers to a wholly owned company, and small business entities (aggregated turnover under A$10 million) can use the small business restructure rollover to move active assets between structures where the ultimate economic ownership doesn't change. The small business CGT concessions — see our CGT concessions guide — can also reduce gains. State duty may apply to transfers of business assets or land, depending on the state. For families leaving discretionary trusts, the government has proposed an expanded three-year rollover from 1 July 2027 alongside the trust minimum tax.

Two traps to plan for. A change of structure is a change of entity, so the new business needs its own ABN and you can't use the sole trader's ABN on company invoices — see ABN vs ACN. And contracts don't move automatically: a lease in your personal name stays yours until the landlord agrees to assign it, and you may stay liable under any personal guarantee.

Other structures and common mix-ups

The four structures above cover most small businesses, but they aren't the only options. Joint ventures, co-operatives and incorporated associations exist too, and business.gov.au describes them for people with a specific need — for example, a community group running a not-for-profit café, or two firms combining on one project without forming a partnership. They have their own registration bodies, usually at state level, and their own tax rules.

Two mix-ups cause most structure mistakes. The first is thinking a business name is a structure: registering "Northside Plumbing" with ASIC doesn't create a company, and the owner is still a sole trader with unlimited liability. The second is thinking "Pty Ltd" protects you from everything. Banks, landlords and suppliers often ask small company directors for personal guarantees, and once you've signed one, that debt is yours whatever the structure. Check every guarantee before you sign, and keep company money and personal money in separate accounts so the separation is real.

Choosing: a quick decision guide

Start as a sole trader if you're testing an idea, profit is modest, the risk of being sued is low and insurable, and you're the only owner. It costs almost nothing to start and is easy to close. Choose a partnership if there are two or more genuine owners who trust each other, the risk is manageable, and you want to keep things simple — but put a written agreement in place from day one.

Questions to answer before you choose

0/7

• What profit do I expect this year and next, and how much do I need to live on?
• How many owners are there, and do they all work in the business?
• What's the biggest claim or debt the business could face — and is it insurable?
• Will I need investors, a bank loan or a lease that asks for guarantees?
• Could the business make losses in its first years?
• Do I plan to sell the business or pass it to family?
• What will the accountant charge each year for each option?

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Choose a company when you need limited liability, expect profit beyond your living needs, want to bring in investors or sell shares, or need the credibility some customers and banks expect from a Pty Ltd. Consider a trust, usually with a corporate trustee, when the business is established and profitable, owned by one family, and asset protection and income flexibility justify the cost — and model the proposed 2028 minimum tax before you commit.

Official links

• ATO — Business structures: key tax obligationsTax obligations for each structure
• business.gov.au — Business structuresOverview and comparison pages
• business.gov.au — Change your business structureRestructuring steps
• ATO — Changing your business structureTax steps when you restructure
• ASIC — Fees for commonly lodged documentsCompany and business name fees
• Business Registration ServiceABN, TFN, GST, company and business name

Next steps

Write down your expected profit for the next two years, who will own the business, and the worst claim it could face. Then compare the structures using the table and example above, and price the accounting for each. If a sole trader still fits, register your ABN through our ABN registration guide; if a company fits, start with company registration. Our break-even calculator helps you test the profit assumptions first.

This is general information, not legal or tax advice — confirm on the official source or with a professional.

Frequently asked questions

What are the four main business structures in Australia?

Sole trader, partnership, company and trust. A sole trader is one person trading under their own ABN. A partnership is two or more people sharing a business. A company is a separate legal entity registered with ASIC and owned by shareholders. A trust is a business run by a trustee for beneficiaries under a deed. The ATO notes these are the four most commonly used structures.

Which business structure pays the least tax?

It depends on profit and what you do with it. At modest profits a sole trader often pays least, because the first A$18,200 is tax-free. Once profit is well above what the owner needs, a company can keep profit at 25%, and a trust can spread income across family members. Profits paid out of a company are taxed again at the owner's rates, with a credit for company tax.

Is a sole trader or a company better?

A sole trader is cheaper and simpler: a free ABN, one tax return and full control. A company costs A$636 to register and A$342 a year, needs its own return and has director duties, but it limits your liability and can keep profits at 25%. Many people start as a sole trader and incorporate when profit or risk grows.

Can I change my business structure later?

Yes. You can move from sole trader or partnership to a company or trust later, but the new structure is a new entity: it needs its own ABN and TFN, contracts, leases and employees have to move across, and you may need to transfer your business name. Moving assets can trigger capital gains tax and state duty, although rollover relief is often available for small businesses.

Do I need a company to limit my liability?

For most small businesses, yes — a company is the usual way to separate business debts from personal assets. Sole traders and general partners have unlimited liability. A trust with a company as trustee also limits liability. Even with a company, directors can be personally liable for some unpaid tax and super, insolvent trading and personal guarantees they sign.

How is a trust different from a company?

A company is a separate legal entity that pays tax on its profit at 25% or 30%. A trust isn't a separate entity: the trustee runs the business and, in a discretionary trust, decides each year which beneficiaries receive income, and they pay tax at their own rates. Trusts can't pass losses to beneficiaries, and a 30% minimum tax on discretionary trusts is proposed from 1 July 2028.

Sources & verification

Figures on this page were checked against the sources below when it was last reviewed on 11 October 2026. Each rate and limit is stored once with its own official source and review date, and official update channels are monitored daily so changes are picked up. How we verify

1. 1.Business structures – key tax obligations — Australian Taxation Office · accessed 11 October 2026
2. 2.Business structures — business.gov.au · accessed 11 October 2026
3. 3.Partnership — business.gov.au · accessed 11 October 2026
4. 4.Trust — business.gov.au · accessed 11 October 2026
5. 5.Changing your business structure — Australian Taxation Office · accessed 11 October 2026
6. 6.Fees for commonly lodged documents — ASIC · accessed 11 October 2026
7. 7.Tax rates – Australian resident — Australian Taxation Office · accessed 11 October 2026
8. 8.Income Tax Rates Act 1986 — compilation from 1 July 2026 — Federal Register of Legislation · accessed 11 October 2026
9. 9.Budget Paper No. 2 2026–27 — Receipt measures — Australian Government (budget.gov.au) · accessed 11 October 2026
10. 10.Exposure draft legislation – Minimum tax on discretionary trusts (3 September 2026) — The Treasury (Treasurer) · accessed 11 October 2026
11. 11.Tax reform – reforming negative gearing and capital gains tax — Australian Taxation Office · accessed 11 October 2026