Choosing between operating as a sole trader or a company (Pty Ltd) is one of the first and most consequential decisions for a new business. Each structure has distinct implications for tax, liability, compliance burden, and future growth.
A sole trader is the simplest structure. There's no separation between you and the business — you report business income on your personal tax return and are taxed at individual marginal rates (up to 45% plus Medicare levy). Setup cost is just the ABN registration (free). The downside: you are personally liable for all business debts and legal claims. If the business is sued or goes into debt, your personal assets (house, car, savings) are at risk.
A company (Pty Ltd) is a separate legal entity. It pays company tax at 25% on income up to $50 million turnover (the base rate entity rate). Your personal assets are generally protected from business liabilities (the "corporate veil"). However, setup costs include ASIC registration ($576 for 2025-26), annual review fees ($310), and the ongoing compliance of maintaining company records, director duties, and potentially separate tax returns and BAS.
The common tipping point: when your taxable business income consistently exceeds $100,000-$120,000, the company tax rate (25%) becomes materially cheaper than the top marginal individual rate (45% + 2% Medicare). However, extracting money from the company as a dividend or salary still triggers personal tax — the company structure gives you tax deferral and flexibility, not tax elimination.