Choose a structure
Sole trader vs partnership vs Pty Ltd vs trust: the 2026 comparison
The structure you choose shapes your tax rate, your personal liability and your ongoing compliance cost. There is no universally best answer — it depends on your profit level, your liability risk and your family circumstances. Here is how the four core structures stack up, with current ATO + ASIC figures.
★Key takeaways
- ✓Four core structures: sole trader, partnership, Pty Ltd company, and trust (discretionary, unit, hybrid or bare).
- ✓Sole trader: $0 setup, taxed at personal marginal rates (up to 47% including Medicare), unlimited personal liability.
- ✓Pty Ltd: $611 setup + $321 annual ASIC review, 25% base rate company tax, limited liability.
- ✓Discretionary trust: $1,500-$3,000 setup with corporate trustee, income passed through to beneficiaries, asset protection via separation.
- ✓Choose the structure before you start trading — restructuring later triggers CGT, fresh ABNs and contract migration.
- ✓No structure is universally best. The right answer depends on profit level, liability risk, family circumstances and exit plans.
Side-by-side
Structures compared at a glance
| Structure | Setup cost | Annual cost | Tax rate | Liability |
|---|---|---|---|---|
| Sole trader | $0 (ABN free) | $0 (ATO + ABR) | Personal marginal rates (0% to 45% + 2% Medicare) | Unlimited — personal assets at risk |
| Partnership | $0 ABN + ~$1,000-$3,000 partnership agreement (legal) | $0 ASIC; partnership tax return prepared annually | Each partner taxed on their share at personal marginal rates | Unlimited — partners jointly and severally liable |
| Pty Ltd company | $611 ASIC + $300-$1,500 agent fees | $321 ASIC review + accounting + BAS | 25% (base rate entity) or 30% (large companies) | Limited — director liability for insolvent trading + safety + tax debts |
| Discretionary (family) trust | $1,500-$3,000 (deed + Pty Ltd trustee) | $300+ trust tax return + (if corporate trustee) $321 ASIC | Passed through to beneficiaries at their personal marginal rates | Limited via corporate trustee; trust assets separated from beneficiaries |
| Unit trust | $1,500-$3,000 (deed + corporate trustee) | $300+ trust tax return + $321 ASIC if corporate trustee | Passed through to unit holders proportional to their unit holdings | Limited via corporate trustee |
| Hybrid trust | $1,500-$3,500 (deed + corporate trustee + legal review) | $300+ trust tax return + $321 ASIC if corporate trustee | Hybrid: fixed component to unit holders + discretionary residue | Limited via corporate trustee |
| Bare trust | $500-$2,000 (deed) | $0-$300 (administrative) | Treated as direct ownership by the beneficiary | Limited via corporate trustee where applicable |
Figures are 2026-27. ASIC fees are indexed annually on 1 July. Setup cost ranges reflect typical agent + legal fees in Australia; verify with a quote before committing.
Sole trader
Sole trader — at a glance
Setup cost
$0 (ABN free)
Annual cost
$0 (ATO + ABR)
Tax rate
Personal marginal rates (0% to 45% + 2% Medicare)
Suits
Freelancers, sole-operators, side businesses under ~$100k. Lowest admin overhead.
Watch-outs
No asset protection. No tax flexibility. Profits taxed at your personal marginal rate, which exceeds the company rate above ~$120k.
Partnership
Partnership — at a glance
Setup cost
$0 ABN + ~$1,000-$3,000 partnership agreement (legal)
Annual cost
$0 ASIC; partnership tax return prepared annually
Tax rate
Each partner taxed on their share at personal marginal rates
Suits
Two or more people running a business together where a trust or company is unnecessary. Common in professional services historically; declining.
Watch-outs
Each partner is liable for the actions of every other partner. Disputes are common — a written partnership agreement is essential.
Pty Ltd company
Pty Ltd company — at a glance
Setup cost
$611 ASIC + $300-$1,500 agent fees
Annual cost
$321 ASIC review + accounting + BAS
Tax rate
25% (base rate entity) or 30% (large companies)
Suits
Businesses earning above ~$80k where you want asset protection, capacity to retain profits at the company rate, and capacity to raise capital or sell.
Watch-outs
More compliance: ASIC annual review, separate company tax return, formal record-keeping. Director duties under the Corporations Act 2001 apply.
Discretionary (family) trust
Discretionary (family) trust — at a glance
Setup cost
$1,500-$3,000 (deed + Pty Ltd trustee)
Annual cost
$300+ trust tax return + (if corporate trustee) $321 ASIC
Tax rate
Passed through to beneficiaries at their personal marginal rates
Suits
Family-run businesses or investment vehicles where you want flexibility to distribute income tax-efficiently across family members each year.
Watch-outs
Anti-avoidance rules limit distributions to minors (Div 6AA, taxed at 47% above $416). 50% CGT discount available. Section 100A reimbursement-agreement rules now affect adult distributions back to parents.
Unit trust
Unit trust — at a glance
Setup cost
$1,500-$3,000 (deed + corporate trustee)
Annual cost
$300+ trust tax return + $321 ASIC if corporate trustee
Tax rate
Passed through to unit holders proportional to their unit holdings
Suits
Unrelated parties pooling capital — typical for property syndication or joint investment. Fixed-entitlement income flow makes ownership clean.
Watch-outs
No distribution flexibility (income flows in fixed proportions). 50% CGT discount available to individual unit holders.
Hybrid trust
Hybrid trust — at a glance
Setup cost
$1,500-$3,500 (deed + corporate trustee + legal review)
Annual cost
$300+ trust tax return + $321 ASIC if corporate trustee
Tax rate
Hybrid: fixed component to unit holders + discretionary residue
Suits
Niche scenarios where part of the income is to be paid to a fixed-entitlement investor and part is to remain discretionary.
Watch-outs
Hybrid trust deeds are heavily scrutinised by the ATO and have lost ground over the last decade. Get specialist legal advice.
Bare trust
Bare trust — at a glance
Setup cost
$500-$2,000 (deed)
Annual cost
$0-$300 (administrative)
Tax rate
Treated as direct ownership by the beneficiary
Suits
Holding a single asset on behalf of a beneficiary (commonly the property held under an SMSF limited-recourse borrowing arrangement).
Watch-outs
No discretion or distribution flexibility — the trustee acts purely as custodian.
Decision factors
How to choose between them
- Profit level. Below ~$80,000-$100,000, the company rate (25%) rarely beats your personal marginal rate net of admin overhead. Above ~$120,000, retaining profits at 25% in a company is meaningfully cheaper than paying yourself salary at 39% or higher.
- Liability exposure. If your work involves any meaningful risk of being sued — construction, financial advice, healthcare, food, anything physical — limited liability through a Pty Ltd is the floor.
- Family circumstances. If you have a spouse on a lower income or adult children studying, a discretionary trust enables tax-efficient distributions. Single founders without family in the picture get less benefit.
- Asset protection. A trust with a corporate trustee separates business assets from personal assets. Useful for property investment and family wealth structures; less critical for service businesses with no significant assets.
- Exit + funding plans. External investors and acquirers strongly prefer Pty Ltd structures. Trusts and partnerships are difficult to sell as a whole — buyers usually take the underlying assets.
- Admin tolerance. A Pty Ltd plus a discretionary trust plus a corporate trustee is three entities, three tax returns, ASIC reviews, board minutes and trust resolutions. If you will not maintain the discipline, the structure leaks value.
Common combinations
Multi-entity structures you will see
- Pty Ltd trading + corporate trustee for a family trust: the trust owns the shares in the trading company, profits flow up as franked dividends, the trust distributes to family members. Standard structure for family businesses.
- Holding company over an operating company: the holding company owns shares in the operating company and any IP, leases of premises and equipment. Insulates valuable assets from operational risk.
- Bucket company under a discretionary trust: a separate Pty Ltd "bucket" receives trust distributions taxed at the company rate (25% or 30%) as a holding entity for retained capital.
- SMSF + bare trust for LRBA: a self-managed super fund borrows to acquire property; legal title sits in a bare trust until the loan is repaid. Highly regulated — requires SMSF advice.
Each combination has trade-offs and ATO rules attached. None of them should be put in place without specific tax and legal advice on your circumstances.
Primary sources
Where the figures on this page come from
- Company tax rate (base rate entity): ato.gov.au/rates/changes-to-company-tax-rates.
- Individual tax rates: ato.gov.au/rates/individual-income-tax-rates.
- Trusts (Division 6AA, Section 100A): ato.gov.au/general/trusts.
- ASIC fee schedule: asic.gov.au/for-business/payments-fees-and-invoices/asic-fees.
This page is general information. Choice of structure is consequential and depends on personal circumstances — get advice from a TPB-registered tax agent and an Australian legal practitioner before deciding. See our disclaimer.
Common questions
Business structures — common questions
At what point should I switch from sole trader to Pty Ltd?
The conventional triggers are: profit above $80,000-$120,000 (where the company rate of 25% beats your personal marginal rate), hiring employees, taking on liability risk, raising capital, or planning to sell. Below those triggers the additional ASIC and accounting cost of a company typically outweighs the tax saving. The ATO has no rule that forces a structure — it is a commercial decision.
Is the company tax rate 25% or 30%?
A base rate entity pays 25%. To qualify: aggregated turnover under $50 million AND no more than 80% of assessable income is passive (interest, dividends, rent, royalties, net capital gains). All other companies pay 30%. The base rate entity test is reviewed annually. Source: ato.gov.au/rates/changes-to-company-tax-rates.
Does a trust protect my assets?
A correctly structured trust with a corporate trustee provides separation between business assets and personal assets, which protects against creditors of the trustee in its own capacity. It does not protect the assets from claims against the trust itself, against bankruptcy where the trust is treated as a sham, against Family Court orders, or against ATO recovery of trust tax liabilities from directors of a corporate trustee. Asset protection is not absolute — get advice.
Can a sole trader employ staff?
Yes. A sole trader can employ staff, register for PAYG withholding, pay Super Guarantee and lodge a Single Touch Payroll feed. The trade-off: every employment-related liability (unfair dismissal, workers comp, super shortfalls) sits with the sole trader personally because there is no separate legal entity.
What is the difference between a partnership and a company?
A partnership is not a separate legal entity — partners trade in their own names under a shared ABN, share profits and are personally liable. A Pty Ltd company is a separate legal entity that contracts in its own name, shields shareholders from business debts (other than personal guarantees and director liability), and pays its own tax. For two-person businesses, a Pty Ltd is almost always the better long-term structure.
Why use a discretionary trust for a family business?
Two main reasons: income-distribution flexibility (the trustee chooses each year which adult beneficiaries receive what, within the bounds of the deed) and asset protection (the assets are held by the corporate trustee, not personally by the beneficiaries). The flexibility allows tax-efficient distributions across family members on lower marginal rates, subject to Division 6AA (minors), Section 100A (reimbursement agreements) and the personal services income rules.
Do I need to register a trust with ASIC?
No. Trusts are not registered with ASIC. The trust deed is a private document signed by the settlor and trustee. The trust does need an ABN (and TFN, and GST if applicable). If the trustee is a Pty Ltd company, that company is registered with ASIC — but the trust itself is not.
Can I change structures later?
Yes, but it is rarely cost-free. Moving from sole trader to a company involves transferring assets (potentially triggering CGT, although small business CGT concessions may apply), opening new ABNs and bank accounts and contracts with customers. Plan the structure carefully at the outset, but do not over-engineer for a future state that may never arrive.
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