Company v Sole Trader – Which business Structure is Better

CRITERIASOLE TRADERCOMPANY
PersonSole Trader is a the Individual him/herself.Company is Separate legal entity in its own right.
ControlThe Individual controls the business him/herself.Director’s of the company run the business.
Entry CostCheaper to start and run. Apply for ABN.Expensive than a sole trader ABN. Australian Company Number is needed to be applied and registered with ASIC. Open a New company.
Recurring CostNIL$254.00 Annual ASIC Review Fee
ASIC RegistrationNOYES
ABN RegistrationYES a an IndividualYES as a registered Company
LiabilityUnlimited Liability – if the business is taken to court there is potential that all the individual’s assets ar einvolved in the litigation.Limited Liability – Libility of the creditor’s can not exceed the assets of the company. So the director’s personal assets are potentially saved from litigation..
AdminstrationLow – Still needs to keep business records for at least 5 years.High – Complete business records to be maintained for at leats 7 years.
Who pays Tax?Individual pays tax on the profit.Company Pays Tax on Profit.
How much Tax?Tax is paid on Individual’s Marginal Rates. No tax is paid if the total profit is <$18200 assuming that the individual has no other Income.From the 2017–18 income year, companies that are base rate entities must apply the lower 27.5% company tax rate is the aggregate turnover of the company is <$10 million. If it is more than $10 million then the tax rate will be 30%.
Lets have a look at below example. The below tax rates are calculated for Individual including Tax Free threshol, Tax Offsets and Medicare Levy. It is Also assumed that the Turnover/Sale of the business is Less Than $10 Million per annum.See how Upto $100,000 income/profit Company tax rates are higher.As soon as the $110,000 income/profit mark is reached – Company is more beneficial for tax purposes.