Sole trader versus Pty Ltd – when is it time to change your business structure (and potentially save thousands)?
In a cost-of-living crisis and high-interest environment, every dollar counts.
And for the 1.5 million sole traders across Australia, there’s a hidden lever that could potentially deliver serious financial relief: switching to a proprietary limited, or “Pty Ltd”, company structure.
Operating as a sole trader is simple and low-cost to start with, requiring a simple Australian Business Number (ABN) and very little paperwork, ongoing reporting requirements, and no need for a separate legal entity. It’s a very tempting structure.
But the moment your income climbs to a certain point, or you take on more financial complexity, that simplicity starts to cost you, in tax, in liability, and in lost opportunities.
So when exactly is the right time to make the switch?
Liability and Control
As a sole trader, you may have full control, which feels nice. But, critically, you’re also legally responsible for every aspect of the business’s existence, including debts and losses.
This is called having ‘unlimited liability’ and it means your personal assets are taken into account if you incur debts or have a court of law issue you with a financial penalty.
The buck stops with you – and your possessions! This is why it’s worth considering shifting to a Pty Ltd when your risk profile changes.
For example, the simplicity of sole trader status can quickly become a liability if you start relying more heavily on customers or clients to pay on time, need longer payment terms yourself, or begin managing more complex finances, like detailed P&L reports, larger accounts receivable or accounts payable.
In these scenarios, operating as a Pty Ltd can offer greater protection and peace of mind.
Tax Planning
Let’s be direct: a sole trader earning $120,000 a year could be handing over around $33,000 in income tax and Medicare levies. This is because sole traders are taxed at personal income rates, which scale quickly.
But once you shift to a Pty Ltd structure, you’re taxed at a flat company rate, which is currently 25 percent for small businesses. That switch alone typically starts saving business owners at least $5,000 per year, with the benefits increasing as income grows.
You’ll also gain access to smarter tax strategies, such as blending salary and dividends, and unlocking a wider range of deductible business expenses.
And beyond tax, becoming a Pty Ltd opens the door to a broader suite of financial services: think business credit cards, working capital lines, asset finance & more, all far easier to access than as a sole trader.
Growth, Credibility, Succession
It’s an unfortunate reality. It’s harder to attract customers, suppliers, employees, government contracts, and investors as a sole trader because of the perceived higher risks.
A Pty Ltd company simply appears more established, more trustworthy, and more scalable — even if it’s still just you behind the screen! So at the point you want to appear significantly more credible – or take the serious next step of capital raising – it’s definitely worth considering the switch.
The Pty Ltd structure also opens the door to employee share schemes and business continuity in a way that sole trader structures simply can’t match.
Unlike sole trader businesses that cease to exist upon the owner’s death, a Pty Ltd company has “perpetual succession”. This means the business can continue operating even if ownership changes or a director leaves.
Selling (or “exiting”) a business is often a major goal of starting a business in the first place – after all, who doesn’t want to retire young and live off the funds of your entrepreneurial genius!
So that is another consideration worth stewing on when deciding whether to make the switch.
The bottom line?
If you’re a sole trader bringing in more than $80k to $100K a year, managing staff, or planning to grow, the numbers likely stack up in favour of making the switch.
There are now smart platforms that offer incorporation tools to help businesses register as Pty Ltds, open a business account in minutes, and automate all of the heavy lifting— from tax categorisation to IAS/BAS statement preparation and spend management.
This means the shift is no longer a hassle – it’s an opportunity.
Because business is hard enough. Your structure shouldn’t add to the difficulties!
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