If you are starting a business in Australia, one of the first decisions you will make is choosing a business structure. It is also one of the most important. Your structure determines how much tax you pay, whether your personal assets are protected from business debts, what compliance obligations you carry, and how easy it is to bring in partners, investors, or eventually sell.
Australia has four main business structures: sole trader, partnership, company, and trust. Each has its own rules around liability, taxation, setup costs, and ongoing administration. If you are operating in New South Wales, there are state-level obligations on top of the federal requirements that many business owners overlook.
This guide explains how each business structure works, approximate costs, and the local considerations for businesses in NSW, Wollongong, and the Illawarra region.
A sole trader is the simplest and most common business structure in Australia. As of June 2025, approximately 822,873 sole traders held a registered ABN, making up around 30% of all businesses.
When you operate as a sole trader, you and the business are the same. There is no separate legal entity. You control all decisions, keep all profits, and bear all losses. You can employ staff, but you cannot employ yourself.
Your business income is added to any other personal income and taxed at your marginal tax rate. You report everything in one individual tax return.
An ABN is free. If you want to trade under a name other than your own, a business name costs around $45 for one year or $104 for three years through ASIC. There is no separate company registration, no ASIC annual review fee, and no separate tax return for the business.
The biggest pros of being a sole trader are full control of your business, minimal paperwork, and the lowest setup cost. You can also access the small business CGT concessions and the $20,000 instant asset write off (extended through 30 June 2026) without the complexity of a company or trust.
The biggest risk of running your business as a sole trader is unlimited personal liability. If the business is sued or incurs debts, your home, vehicle, savings, and other personal assets are at risk. As income grows, you may also pay more tax than you would through a company. The top marginal rate is 45% (plus the 2% Medicare levy) for income above $190,000, compared to the 25% company tax rate for base rate entities.
If your total Australian wages exceed $1.2 million in 2025/26, you must register for NSW payroll tax at 5.45%. Most sole traders sit below this, but if you run a team, it is worth monitoring. Workers’ compensation insurance is mandatory if you employ anyone in NSW.
A partnership is formed when two or more people carry on a business together with a view to making a profit.
The partnership lodges a tax return showing total income and deductions, but it does not pay tax itself. Each partner reports their share in their own individual return and pays tax at their personal marginal rate. Partners are jointly and individually liable for the debts of the partnership, which means if one partner cannot pay their share, the others must cover it.
There are three types:
You need a separate ABN and must register a business name if trading under anything other than all partners’ full names. A partnership agreement is not legally required, but it is strongly recommended. Without one, disputes are governed by default rules under the Partnership Act 1892 (NSW), which may not reflect what the partners intended. A solicitor-drafted agreement generally costs between $1,000 to $3,000.
Pool resources and skills without the compliance burden of a company. Flexible profit sharing (though it must reflect the partnership agreement or default to equal splits).
Unlimited personal liability for each partner, covering the full debts of the partnership. Exits and disputes can be costly and complicated without an official agreement.
The $1.2 million payroll tax threshold applies, as it does with sole traders. Partners’ drawings are not wages for payroll tax purposes, but payments to employees and certain contractors are included. If you are part of a group of related businesses, the threshold is shared across the group.
A company is a separate legal entity from its owners (shareholders) and the people who manage it (directors). This distinction is what provides limited liability protection. Companies make up approximately 44% of all registered businesses in Australia and are governed by the Corporations Act 2001 (Cth).
The company can own property, enter into contracts, incur debts, and be sued in its own name. Shareholders’ liability is limited to the amount unpaid on their shares. For most small businesses, this means personal assets are protected from business debts, unless you personally guarantee a loan.
Every company must have at least one Australian resident director holding a Director Identification Number (Director ID), which is free and a one-off requirement.
Companies pay tax at the company rate: 25% for base rate entities (aggregated turnover under $50 million and no more than 80% passive income) or 30% for all others. Profits are distributed as dividends and taxed in the shareholders’ hands, with franking credits reducing double taxation.
ASIC registration for a proprietary limited company costs $611 as of 1 July 2025. Budget for:
Total first-year costs can range from $1,600 to $6,000+, depending on complexity and professional fees. If you’re considering establishing a company, book a no-obligation, complimentary first meeting with the team at Webb Financial. We will walk you through setup costs and discuss what best suits your business stage.
The biggest pro of a company is the limited liability protection. You also have the ability to bring in shareholders or investors as your business grows or you need to raise capital. The 25% company tax rate (for base rate entities) is lower than the top personal tax rate. You can retain profits in the company and manage the timing of dividend distributions. A company structure also conveys credibility when securing contracts or business finance.
There are higher setup and ongoing costs. You must maintain ASIC compliance, lodge a separate company tax return (plus your individual return), and keep financial records. Money in the company is not your personal money. Profits must be distributed as wages (subject to PAYG), dividends, or director fees, each with different tax treatment. Deregistration costs $50 and requires all debts to be settled.
Payroll tax applies if NSW wages exceed $1.2 million at 5.45%. For companies operating across multiple states, the threshold is apportioned based on the proportion of total Australian wages paid in NSW.
Land tax is relevant if the company holds property. The general threshold from 2025 onward is $1,075,000 (frozen), with a rate of 1.6% up to the premium threshold of $6,571,000, then 2% above that. Workers’ compensation insurance is mandatory for any NSW employees.
A trust is a legal relationship where a trustee holds and manages assets for the benefit of beneficiaries. Trusts make up nearly 18% of all registered businesses in Australia and are widely used for tax planning, asset protection, and succession.
The most common business trust is a discretionary (or family) trust, where the trustee has discretion over how income and capital are distributed among beneficiaries each year.
A trust has three key roles: the settlor (who creates the trust), the trustee (who manages assets and makes decisions), and the beneficiaries (who receive distributions). For business trusts, the trustee is often a company (a corporate trustee), adding a layer of liability protection.
The trust itself generally does not pay income tax. The trustee distributes income to beneficiaries, who pay tax at their own marginal rates. This creates flexibility to direct income to beneficiaries in lower tax brackets, subject to ATO anti-avoidance rules.
A trust deed prepared by a solicitor costs around $1,500 to $3,000. If you use a corporate trustee (recommended), add the $611 ASIC registration fee plus the $329 annual review (or reduced fee if the company is a special purpose entity). The trust needs its own ABN and TFN but does not require separate ASIC registration.
Income distribution flexibility across family members. Asset protection (trust assets are generally not available to personal creditors of individual beneficiaries). Succession planning has advantages, allowing wealth transfer between generations without triggering a capital gains tax event in many cases.
Trusts are the most complex and expensive structure to set up and maintain. Losses are trapped in the trust and cannot be distributed to beneficiaries. The ATO is increasing scrutiny of trusts, particularly around income splitting and Section 100A arrangements where distributions go to entities that do not have the capacity to pay the tax.
This is where trusts get expensive in NSW. Discretionary trusts and special trusts do not receive the $1,075,000 land tax-free threshold. Land owned by these trusts is taxed from the first dollar at 1.6%, which can result in a high annual cost even on modest property holdings.
If the trust deed does not exclude foreign beneficiaries, the trust may also be liable for the 9% surcharge purchaser duty and 4% surcharge land tax when acquiring or holding residential property. Trust deeds should be reviewed and, where necessary, amended to irrevocably exclude foreign beneficiaries to avoid this.
Payroll tax grouping is another area to watch. Under the Payroll Tax Act 2007 (NSW), each beneficiary of a discretionary trust is deemed to have a controlling interest. If a beneficiary is connected to other businesses, those businesses may be grouped, and the $1.2 million threshold shared across the entire group.
Choosing a business structure is not a one-off decision. Common triggers for a review include:
Restructuring can trigger capital gains tax, stamp duty, and other costs if not handled correctly. That’s why getting professional accounting and financial advice before making changes is essential.
Your business structure affects your tax, your personal risk exposure, and your ability to grow for years to come. Getting it right from the start, or restructuring at the right time, saves you money and protects what you have built.
At Webb Financial, our business accountants help businesses compare structures, set up new entities, restructure safely, and review asset protection. With fixed fee accounting packages and a free initial consultation, you will always know what it costs before we start.
To book a free consultation, call us on 02 4244 4054.
Sources:
