Tax differences between a sole trader and a company

Question Sole trader Company

What is the tax-free threshold?

  • $18,200 for sole traders (individuals) in the 2018-19 income year.
  • It changes from time to time so check the individual income rates.
  • There is no tax-free threshold for companies in the 2018-19 income year.

What are the tax rates for income?

  • The full company tax rate is currently 30%. The 27.5% lower company tax rate applies to businesses that are base rate entities. From 1 July 2017, a base rate entity has an annual turnover of less than $25 million (increased to $50 million from 2018-19), and 80% or less of their assessable income is base rate entity passive income.
  • No tax-free threshold for small business and companies.

What small business concessions are available?

What type of tax returns need to be lodged?

  • Individual tax return  needs to be lodged each year.
  • Business income and expenses go in your individual tax return using a separate business schedule – you do not need to lodge a separate return for your business.
  • Separate company tax return needs to be lodged.
  • You must also lodge your own personal return as an individual for income you earn via wages, shares, dividends or loans received from the company or any other sources of income.
  • If you are a director of a company or trust, benefits you receive may be subject to FBT. You must lodge an FBT return if you have a liability during an FBT year (1 April to 31 March).
  • Must also lodge return of any associated company trusts.

What business taxes and superannuation will I need to pay and report?

Business taxes and superannuation are not based on your business structure, but the activities of the business.

You may need to register for taxes such as:

If you have employees you will also need to:

Consider if you need to pay fringe benefits tax (FBT) instalments. This is only required if employees receive a fringe benefit.  Check out the Australian Taxation Office’s (ATO) website for more on the types of payments that incur FBT.

When do I have to pay Goods and Services Tax(GST)?

For both a company and a sole trader, you must register for GST if you either:

  • have a turnover of $75,000 or more
  • provide ride share services for a fare in your business, e.g. if you drive a taxi or limousine
  • want to claim fuel tax credits for your business.

Otherwise, it is optional to register.

When do I have to pay payroll tax?

Payroll tax is regulated by the state governments and therefore each state is different.

Find out more

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