Company vs Trust vs Sole Trader — Choosing Your Structure

Australia offers three primary operating structures for small business: sole trader, company, and trust (typically a discretionary trust). Each has distinct tax treatment, liability exposure, and compliance cost. Choosing the right one (or combination) upfront is one of the most valuable decisions you'll make — changing structure later is expensive and disruptive. Sole trader: simplest setup, lowest compliance cost ($0 for the structure itself), but all income is taxed at your personal marginal rate (up to 47%). You have unlimited personal liability — creditors can access your personal assets. Appropriate for very early stage, very low-risk businesses with minimal income, or side income below the tax-free threshold. Company: a separate legal entity, taxed at the corporate rate (25% for base rate entities with aggregated turnover under $50M). Provides liability protection — shareholders are not personally liable for company debts beyond their share capital, except where personal guarantees exist. Has access to tax benefits like R&D tax incentives, fringe benefits tax planning, and superannuation contributions. Dividends paid to shareholders are franked — the company tax already paid creates franking credits that reduce the shareholder's personal tax liability. Discretionary Trust: the most flexible structure for a family or multi-beneficiary business. The trustee controls distribution of income to beneficiaries each year, allowing income to be directed to lower-income family members to minimise total family tax. Does not pay income tax itself (distributes all income to beneficiaries). Does not get the 25% company rate, but the flexibility in distribution often more than compensates.

For a tech founder in Brisbane running multiple products (ShowerBuddy, BathCheck), working with enterprise clients (Dormakaba, Gliderol), and building toward significant asset accumulation, a hybrid structure is typically optimal. A common structure: Discretionary Trust as the operating entity for the software/services business, with a Trustee Company (Pty Ltd) as trustee. The trust holds the business income and can distribute to: the founder personally (for living expenses), a bucket company (taxed at 25% rather than the top personal rate of 47% for income held there), and a spouse or other family members with lower income. The trust also gets the 50% CGT discount on assets held more than 12 months. For IP (software, trademarks), consider holding them in a separate entity — either the operating company or a dedicated IP Holding Trust. This allows IP licensing income to be managed separately from operating income and provides an additional protection layer. This isn't a one-size-fits-all answer. Your specific situation — number of products, client types, personal income, family structure, plans for investment — changes the optimal answer. Get a review from a specialist business tax accountant before structuring or restructuring. The cost of advice ($2,000–$5,000) is recovered in tax savings in Year 1.