Sole trader or company: when should a tradie or growing business make the switch
Almost everyone starts out as a sole trader, and that can b e completely fine at the start. The question is when to move to a company, and there are two clear signals that tell you it might be time.
Signal one: tax
As a rough guide, once you're earning around $130,000, a company structure can start to save you money on tax. Below that, being a sole trader is usually simpler and cheaper. Above it, it's worth doing the numbers on a switch. This is a rough marker, not a hard line, and it depends on your full picture, but it's the point where the conversation is worth having.
Signal two: asset protection
This is the big one, and it's the one people don't think about until it's too late. As a sole trader, your personal tax file number is linked to your business. So if something goes badly wrong, the things you own personally, your car, your house, can potentially be at risk to cover business debts.
A company works differently. Think of it like giving birth to a separate person. It gets its own birth certificate through ASIC and its own identification numbers, which draws a line in the sand between you and the business. So if something happens to the company, there's separation between it and your personal assets. That's why people set up a company: for that extra layer of protection.
The two moments to think about it
There are two points where the switch usually makes sense. The first is when you're about to buy your own home, or you've got personal assets worth protecting. The second is when you take on your first employee, because having staff adds risk, and separating yourself from the business gives you that bit more protection.
It doesn't mean anything's going to go wrong. It's just about thinking ahead. And if you're planning to grow, the move to a company tends to happen naturally down the track anyway.
The bit worth getting right
Changing structure has tax consequences, timing that matters, and paperwork that needs to be done properly. It's not something to rush or guess at. The good news is it's a conversation, not a leap, and the more familiar you get with how it works now, the easier the switch is when the time comes.
If you're wondering whether you've outgrown being a sole trader, that's exactly the kind of thing we help business owners work through. We'll look at your actual numbers and tell you straight whether it's worth it yet.