Entity Setup
Setting Up the Right Entity: Company vs Trust vs Sole Trader
Comparing sole traders, companies and trusts in Australia—how to choose the structure that suits your business, with real costs and compliance obligations.
By NomadicTax Research Team • 5-8 min read • April 9, 2026
## Entities at a Glance
Here are the three most common structures used in Australia, along with pros and cons:
| Structure | Key Advantages | Main Drawbacks |
|---|---|---|
| **Sole Trader** | Easy to set up, lowest compliance costs, full control over profits | Unlimited liability, higher personal tax rates as income increases, harder to scale |
| **Company (Pty Ltd)** | Limited liability, flat company tax rates (30% or 25% for base rate entities), lends credibility | Higher setup & admin costs, stricter compliance & governance required, separate tax return needed |
| **Trust** | Asset protection, income splitting through beneficiaries, some tax planning flexibility | Can be expensive, complex rules, trust loss restrictions, interest in capital gains limitations |
## Deciding What’s Right for You
**Consider these factors**:
* **Income level**: If you expect high business profits, using a company might help reduce taxes.
* **Risk exposure**: If your business carries liability risk, a company protects personal assets.
* **Growth ambition**: Trusts or companies make it easier to bring in partners or investors.
* **Estate planning**: Trusts offer flexibility for distributing assets to beneficiaries after death.
## What Being a Base Rate Entity Means
If employing a company, check whether you qualify as a **Base Rate Entity** (BRE). BREs pay a lower company rate (25%) but must satisfy certain conditions like turnover and passive income limits. Breaching those could lead to defaulting to the full rate.
## Compliance Obligations by Entity Type
| Entity | Annual Obligations |
|--------|---------------------|
| Sole Trader | Individual tax return including business income; keep accurate records; may need BAS if GST registered |
| Company | Company tax return; annual ASIC reporting; maintain minutes and financial statements; directors duties |
| Trust | Trust deed; trustee is liable; distribution resolutions; trust tax return; rules on beneficiary entitlement |
## Example Case Study
Sarah starts a side business selling crafts online, expecting AU$40,000 profit. As a sole trader, all profit is taxed at her individual rates. If she instead sets up a company, her business income is taxed at 25%, but she will incur extra accounting fees, register with ASIC, and maintain corporate records.
If she uses a trust and distributes profits to lower-taxed family members, she might reduce overall tax—but trustee duties, trust deed compliance, and potential conflicts must be managed.
## Actionable Advice Before You Choose
1. Forecast profits for 1-3 years to see if savings in company structure offset extra admin costs.
2. Consult a professional to draft or review a trust deed—minor wording could lead to pitfalls later.
3. Register immediately for GST if your turnover is expected to exceed AU$75,000.
4. Stay updated with lodgment and payment dates—rist of penalties grows with delay.
5. Review yearly whether your chosen structure still suits your growth and tax environment.
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Picking the right business structure is as much about future planning and risk control as it is about tax savings. Be clear about your goals, check entity rules, and don’t hesitate to get expert help.