Business Structures in Australia: How the Tax Differs
In Australia, the four business structures are sole trader, partnership, company and trust, and the difference that matters is who pays the tax. A sole trader and a partnership push income onto individuals at their own marginal rates, up to 47% with the Medicare levy. A company is its own taxpayer at a flat 25% or 30%. Under a trust, the trustee distributes the income each year and the beneficiaries are taxed on their shares.
Most people are handed a business structure rather than choosing one. An accountant suggests a company, a family member swears by trusts, and an online registration service offers to set one up before lunch. All three are answering a question you have not been told the shape of.
Here is the part that costs money and gets skipped. A company or a trust starts lodging from the day it exists, whether it earns anything or not. The ATO puts it plainly on its business structures page: there is no threshold for business income. Register a Pty Ltd “just in case” and you have committed to a tax return every year, from $440, for as long as the entity is on the register, starting with the year you registered it.
This guide compares the four business structures in Australia on the three things that decide the answer: who pays the tax, at what rate, and what each one costs to run. If you already know your structure and just want the return lodged, start here instead.
The 2026-27 Federal Budget proposed two measures that change this comparison: a 30% minimum tax on discretionary trust income from 1 July 2028, and the replacement of the 50% CGT discount from 1 July 2027. Neither is law and nothing changes for the current financial year. What they would change is covered further down.
Who actually pays the tax
Choosing a structure is choosing who the taxpayer is. Every other difference follows from that one decision.
There are three modes, not four. A sole trader and a partnership both put the income on individual tax returns at marginal rates. A company is a separate taxpayer that pays a flat rate on what it keeps. Under a trust, nobody is taxed until the trustee decides who is presently entitled, and then that beneficiary is taxed on their share.
Sole trader
You are the taxpayer. There is one tax file number, yours, and one return: your individual return with the business and professional items schedule attached. You lodge it through myTax, a registered agent, or on paper.
The rate is your own marginal rate. For 2025-26 the ATO’s resident rates table runs nil to $18,200, then 16c in the dollar to $45,000, 30c to $135,000, 37c to $190,000, and 45c above that. Those rates exclude the Medicare levy of 2%, so income at the top of your return is taxed at 47%.
The rule that catches people is the lodgement one. You must lodge even if your business income is below the tax-free threshold, because the threshold applies to your personal income, not to the question of whether a business return is due. Carry on a business and a return is due.
On liability, ASIC and business.gov.au both put it the same way: there is no legal separation between you and the business, so business debts are your debts.
For most new businesses earning inside the first two brackets, this is the right structure, and staying here is not a lack of ambition. It is one return a year and no entity to maintain. Our sole trader returns are $440 inc GST, the same as a simple company return.
Partnership
The partners are the taxpayers. The partnership lodges its own return, but it does not pay income tax on what it earns. Each partner reports their share in their own return and pays at their own marginal rate.
That means a partnership does not change the rate anyone pays. It changes the split. Two partners on equal shares of $120,000 are each taxed on $60,000 at their own rates, which is the same outcome as two sole traders earning $60,000 each.
What it adds is lodgement. A partnership return plus a personal return for every partner is more paperwork than a sole trader carries, for identical tax treatment. The structure earns its place through shared ownership and a documented split, not through tax.
Liability is shared and joint, which in practice means a partner can be pursued for the whole debt rather than their share. Partnership returns start at $660 inc GST.
Company
The company is the taxpayer, separately from you. It lodges its own company tax return through SBR-enabled software, a registered agent, or on paper. myTax is not a channel for a company, and a company cannot lodge directly through Online services for business either. A small company lodging its own return is generally due 28 February, which moves to 31 October if prior-year returns are outstanding.
The rate is 25% for a base rate entity and 30% for every other company.
“25% for small business” is only half the test. The ATO’s company tax rate changes page sets both conditions, and both are tested for the income year itself: aggregated turnover under $50 million, and no more than 80% of assessable income from base rate entity passive income. Passive income includes dividends and their franking credits, royalties, rent, most interest, and net capital gains. A company whose income is mostly investment returns can sit at 30% while a trading company on the same turnover sits at 25%.
The flat rate is a deferral rather than a discount, and this is the single most misunderstood thing about incorporating. The 25% or 30% applies to money the company keeps. Take it out as a wage and it is taxed to you at your marginal rate. Take it out as a dividend and it is taxed to you with a franking credit for what the company already paid. A company also cannot use the CGT discount at all, where an individual or an Australian trust can discount an eligible gain by 50%.
The reason most people incorporate is not the rate. It is that a company is a separate legal entity, which limits liability in a way a sole trader structure cannot. Company returns start at $440 inc GST, and the director still lodges a personal return on top. Nothing in law requires an accountant to prepare either of them, though self-lodging a company return is a different job from lodging a personal one, and it comes with ASIC obligations sitting alongside the ATO ones.
Trust
Whoever is presently entitled to the income is the taxpayer. A trust is not a legal entity at all. The ATO describes it as an obligation imposed on a person to hold property for the benefit of beneficiaries, a relationship rather than a thing, though it is treated as an entity for tax administration.
The trustee lodges a trust tax return each year. Beneficiaries are then taxed on their share of the net income, in the ATO’s words, regardless of when or whether the income is actually paid to them. The cash can stay in the trust account and the beneficiary is still assessed on it.
The deadline is 30 June and it is unforgiving. If no beneficiary is presently entitled to part of the income, the trustee is taxed on that share at the highest marginal rate that applies to individuals. A missing resolution, not a bad year, is what produces that outcome.
The consequence people do not expect is that trust income cannot be retained. The trustee has to distribute the year’s profit to someone whether the family needs the money or not, which is the entire reason bucket companies exist. How family trusts are taxed covers the distribution mechanics, the beneficiary rates and the minor thresholds in full, and trust returns start at $660 inc GST.
The four structures, side by side
business.gov.au is the first result for this question and rates the tax obligations of the four structures as Low, Low, Medium and High. That is accurate and it is not enough to decide anything with, so here are the figures behind it.
| Structure | Who is assessed | Rate that applies | Separate return |
|---|---|---|---|
| Sole trader | You | Your marginal rates, to 47% with the levy | No, part of your own return |
| Partnership | Each partner | Each partner’s own marginal rates | Yes, plus each partner’s own |
| Company | The company | 25% or 30%, flat | Yes, plus the director’s own |
| Trust | The beneficiary, or the trustee if nobody is entitled | The recipient’s own rate, or the top marginal rate | Yes, plus each beneficiary’s own |
The gap that drives every conversation about incorporating is 47% against 25%. It is real, and it applies only to income that stays inside the company. Compare structures on the whole path the money takes, not on the first step.
What each structure costs to run in a year
The cost side of this decision usually arrives as a vague warning that companies and trusts are “more expensive”. Here is what more means, on our own fixed fees, counting every return the structure actually generates rather than just the entity’s own.
All inc GST, and all before ASIC’s annual review fee, which applies to a company and to a corporate trustee and is indexed each year. Books that are not reconciled add bookkeeping at $50 an hour before any return can start.
A sole trader return covers the whole obligation because there is no second entity. Every other structure generates at least two returns that have to agree with each other. The market range for a business tax return at a firm billing hourly runs several times these figures.
What the announced Budget measures would change
Neither measure below is law. Both were announced in the 2026-27 Federal Budget and both can move before they are legislated.
The trust measure is a 30% minimum tax on discretionary trust income from 1 July 2028, assessed at the trustee level, with a non-refundable credit to individual beneficiaries. The Budget explainer excludes fixed and widely held trusts, complying superannuation funds, special disability trusts, deceased estates and charitable trusts.
The corporate beneficiary exclusion is deliberate and the Budget says so: corporate beneficiaries would be assessed on the trust income they are entitled to without being able to claim credits for the trustee’s tax, so the minimum tax cannot be avoided by cycling income through a bucket company. Roll-over relief was announced alongside it, three years from 1 July 2027, into a company or a fixed trust.
The CGT measure replaces the 50% discount with a discount based on inflation and introduces a minimum 30% tax on gains from 1 July 2027. It applies only to gains arising after that date, and investors in new builds can choose between the old and new arrangements. The ATO’s CGT discount page carries a banner confirming the changes do not apply to Tax Time 2026.
Together the two narrow the gap the standard structure advice is built on. The trust measure attacks the distribution flexibility that is the whole case for a discretionary trust, and the CGT measure erodes the discount advantage individuals and trusts hold over companies. Both are still open to change through consultation and drafting, so neither supports restructuring yet.
Changing structure later
Most growing businesses change structure once, and starting simple is not a trap. It does have a price, and knowing the price is what makes starting simple a decision rather than a gamble.
Transferring an asset into a company is a CGT event, in the ATO’s words, and a capital gain or loss can arise. The small business restructure roll-over can defer that, and it has three conditions: aggregated turnover under $10 million, a transfer forming part of a genuine restructure of an ongoing business rather than an artificial or tax-driven scheme, and no change to the ultimate economic ownership of the assets. Where more than one person owns them, each person’s share of that ownership has to be maintained.
That last condition is the one that fails.
Goodwill transferred to a company is taxable on any gain unless the small business active asset concessions apply. Stamp duty is a state matter, and the ATO refers it to state bodies rather than stating a rate, so check your own state before committing to a date. The ATO’s own advice on the decision is to speak to a solicitor, accountant or registered tax agent, which is unusually direct for a government page and worth taking at face value.
How to choose
Four questions settle it for most people, and none of them is about the tax rate.
- How much personal liability sits in the work? Trades, construction, anything with staff on site or client money in hand pushes towards a company, and that is a liability answer rather than a tax one.
- Is there more than one owner? A partnership or a company with two shareholders documents the split in a way a handshake does not.
- Is income high enough, and steady enough, that a flat rate is worth the compliance? Below the middle brackets it usually is not.
- Will the administration actually get done? A trust with a missed 30 June resolution is worse than no trust, and a company nobody maintains is a liability rather than a shield.
GST confuses this decision more than it should. Registration turns on turnover, not structure. Any of the four must register once GST turnover reaches $75,000, or $150,000 for a non-profit, within 21 days of crossing it. Whether you are a sole trader or a Pty Ltd makes no difference to that test.
The default worth defending is the simple one. A sole trader with an ABN is a complete legal structure, and the sole trader versus company question is worth asking when the numbers or the risk actually change, not at registration. If you are not certain what structure you are already operating under, the structure comparison is the place to start.
Quick answers
What are the four business structures in Australia?
Sole trader, partnership, company and trust. They differ in who the taxpayer is. A sole trader is taxed as an individual, a partnership splits income to the partners who are each taxed personally, a company is a separate taxpayer at a flat rate, and a trustee distributes the trust income to beneficiaries who are taxed on their share.
Which business structure pays the least tax in Australia?
No structure always pays less. A company flat rate of 25% or 30% beats an individual top rate of 47%, but only on income you leave in the company, and the tax on the rest of the journey is still waiting. Below the middle brackets a sole trader usually pays less than a company would, with none of the compliance.
Do I need a company to run a business in Australia?
No. A sole trader with an ABN is a complete, legal business structure and it is what most new Australian businesses use. A company adds limited liability and a flat tax rate, and it adds a company tax return and ASIC obligations that continue whether the company trades or not.
Can I change my business structure later?
Yes, and most growing businesses do. Moving business assets into a new entity is a capital gains tax event, but the small business restructure roll-over can defer the tax where aggregated turnover is under $10 million, the change is a genuine restructure of an ongoing business, and the ultimate economic ownership does not change. Stamp duty is a state matter and sits outside that relief.
Does the GST threshold change depending on my business structure?
No. GST registration turns on turnover, not structure. Any of the four must register once GST turnover reaches $75,000, or $150,000 for a non-profit, and registration is due within 21 days of crossing the threshold.