Sole Trader vs Pty Ltd Calculator
Compare tax outcomes of running your business as a sole trader versus a Pty Ltd company. Includes 25%/30% company tax, dividend imputation and franking credits.
Disclaimer
This calculator provides estimates for general information purposes only. Results should not be relied upon as professional financial, tax, or legal advice. Tax rates and thresholds are based on publicly available ATO data and may change. Always consult a qualified tax agent or financial adviser for advice specific to your circumstances.
Frequently Asked Questions
When should I switch from sole trader to Pty Ltd?
What is a Base Rate Entity (BRE)?
How does dividend imputation prevent double taxation?
Are there any non-tax reasons to use a Pty Ltd?
What is Sole Trader vs Pty Ltd?
A comparison of two business structures: sole trader (you and the business are legally one) versus Pty Ltd company (a separate legal entity with its own tax rate). The choice affects tax payable, asset protection, compliance costs and how easily you can bring in shareholders or sell the business.
How this calculator works
Enter your annual business profit, the salary you'd pay yourself if running a Pty Ltd, and choose Base Rate Entity (25%) or non-BRE (30%). The calculator runs both scenarios: as a sole trader you pay marginal income tax + Medicare on the full profit. As a Pty Ltd, the salary is taxed personally and the residual profit is taxed at the company rate; if paid out as a fully franked dividend, franking credits prevent double taxation.
Sole Trader: Simplicity, but Full Marginal Rates
Sole trader tax = personal income tax on every dollar of profit, with the $18,200 tax-free threshold. Setup is free (just an ABN), bookkeeping is simple, and there's no separate tax return. But profits over ~$135,000 attract the 37% marginal bracket, and over $190,000 attract 45% — so successful sole traders quickly reach high marginal rates with no deferral option.
Pty Ltd: Flat 25% (BRE) or 30%, Plus Imputation
Companies are taxed at 25% if they're a Base Rate Entity (turnover < $50M, ≤80% passive income), otherwise 30%. The flat rate beats high marginal rates. When profits are paid to the owner as a fully franked dividend, the company tax becomes a franking credit — so the owner pays the difference between their marginal rate and the company rate. If the owner is below the company rate, they get a refund.
When Pty Ltd Pays Off
Pty Ltd is generally tax-effective when: (1) profit consistently exceeds $130k–$180k, (2) you can leave some profit retained in the company (defers personal tax), (3) you want limited liability protection, (4) you plan to bring in investors or sell the business, or (5) you'll qualify for the small business CGT concessions on sale (potentially exempting up to $1.78M of capital gain).
Compliance Cost Difference
Pty Ltd has annual costs that sole traders don't: ASIC annual review fee ($329 for 2025-26), accountant for company tax return ($1,500–$3,000 typical), often a separate bookkeeping engagement, and possibly a separate ABN/BAS for the trading entity. Budget $2,500–$4,000/year extra. Below ~$120,000 profit, this usually outweighs any tax saving.
Division 7A: The Trap for Owner Loans
If you take money out of the company as a 'loan' rather than salary or dividend, Division 7A (ITAA 1936) treats it as an unfranked dividend unless you have a complying loan agreement (interest at the benchmark rate, max 7-year term, minimum yearly repayments). Many small business owners trip on this — get accountant guidance before drawing money informally.
Updated for the 2025-26 financial year (1 July 2025 to 30 June 2026).
Official Sources
All calculations are performed in your browser — your data never leaves your device. Results are for general guidance only and should not be considered professional financial advice.
Built and maintained by Konstantin Iakovlev. Data sourced from the ATO and official Australian government sources.