Business Structure for Tradies, Sole Trader vs Company vs Trust

Your business structure determines how much tax you pay, whether your personal assets are protected, and how much paperwork lands on your desk each quarter. For most Australian tradies, the default is sole trader, because that's what the ABN application defaults to, and it's the path of least resistance. But defaulting into a structure without understanding the alternatives can cost you thousands each year.

The choice between sole trader, company (Pty Ltd), and trust isn't a one-size-fits-all decision. It depends on your revenue, the risk profile of your trade, whether you employ people, and your long-term goals. The right structure saves you tax and protects your assets. The wrong one either costs you compliance dollars unnecessarily or leaves you exposed when something goes wrong.

This guide breaks down each structure for Australian trades, when it makes sense, when it doesn't, and how to know when it's time to switch. We'll cover the Personal Services Income (PSI) rules that make income splitting harder for tradies, and the GST threshold that catches many businesses off guard.

Sole Trader, Simple and Cheap, But At What Cost?

If you're a tradie reading this, there's a good chance you're a sole trader. The majority of Australian tradies operate under this structure (sole traders make up an estimated 70% or more of the industry, based on ATO business registration data), and for good reason: it's free to set up, there's no separate tax return, and you're not dealing with ASIC annual fees or complex compliance.

The pros

Setup is as simple as getting an ABN, which is free and takes minutes online. Your tax return is individual, meaning you lodge one return that includes your business income. No separate company return, no trust tax return. Accounting fees for a sole trader tradie typically run $500–$1,500/yr, compared to $2,000–$5,000/yr for a company.

You can also access the full range of individual tax rates, including the tax-free threshold ($18,200) and marginal rates that start at 16% for the 2025-26 income year. If your net business income is under $100,000, your effective tax rate as a sole trader is competitive with, or better than, a company.

The cons

The big one: unlimited liability. If a job goes wrong, a customer sues, and you don't have adequate insurance, your personal assets, your house, your car, your savings, are on the line. For high-risk trades like roofing, electrical, or structural work, this is a significant exposure.

You also can't split income. As a sole trader, all income is taxed in your name at your marginal rate. There's no way to pay a spouse or family member a dividend or distribution unless they're genuinely employed in the business.

The insight: Sole trader is the right structure for most tradies earning under $150,000 in net profit, especially if their trade is lower-risk and they have adequate insurance. Above that threshold, the math starts shifting toward a company structure.

Company Structure (Pty Ltd), Asset Protection at a Price

Setting up a Pty Ltd company involves registering with ASIC, creating a constitution, and appointing directors. Costs run $500–$1,000 to set up and $2,000–$5,000/yr in ongoing accounting and ASIC fees. But the benefits can far outweigh the costs at the right revenue level.

Asset protection

A company is a separate legal entity. If someone sues your business, they sue the company, not you personally (unless you've given a personal guarantee or there's evidence of misconduct). For tradies working on high-value projects, this separation is worth the compliance overhead alone.

It's not bulletproof, banks often require personal guarantees on business loans, and the ATO can pursue directors for unpaid PAYG withholding or superannuation. But for trade-related liabilities like defective work or property damage, the company structure provides a real shield.

Tax rates

The base company tax rate for Australian businesses is 25% (for businesses with less than $50M turnover). Compare this to the top marginal rate of 47% (including Medicare Levy). If your net profit exceeds $150,000, the company rate can save you significant tax, but only if you leave profits in the company rather than paying them out as wages or dividends.

This is where many tradies get tripped up. You can't just pay yourself a small wage and leave the rest in the company at 25%. The ATO's PSI rules prevent tradies from doing this unless they meet specific criteria (like having non-PSI income or employing multiple people). In simple terms: if you're a one-person tradie business, you'll struggle to split income through a company.

Trust Structures, When They Make Sense for Tradies

Trusts are more common among tradies running larger operations with multiple employees or significant assets. The most common type is a discretionary (or "family") trust, which allows you to distribute income to beneficiaries in the most tax-effective way.

How a trust works for a tradie

The trust earns income, and the trustee decides how to distribute that income to beneficiaries each year. If you have a spouse earning less than you, you can distribute income to them, and it's taxed at their lower marginal rate. This income splitting is the main advantage of a trust structure.

The problem, again, is PSI rules. If more than 50% of your income comes from your personal skills and efforts (which it does for almost every tradie), the PSI rules prevent you from splitting that income with family members. The ATO treats PSI as your personal income regardless of the structure.

When a trust works

A trust makes sense for tradies who have non-PSI income, rental property income, investment income, or business income from a team where you're more manager than doer. If you've built a business with multiple employees and the business generates income beyond your personal labour, a trust can be a powerful structure.

It also provides asset protection (similar to a company) and estate planning flexibility. But the compliance costs are higher, expect $3,000–$6,000/yr in accounting fees, and the complexity is real.

GST Registration, PAYG Withholding, and Compliance

Whatever structure you choose, there are compliance obligations that every tradie needs to understand. Getting these wrong is how tradies end up with surprise tax bills that sink their business.

GST registration

You must register for GST when your business turnover reaches $75,000 (or $150,000 for non-profit organisations). Many tradies register earlier than the threshold because it allows them to claim GST credits on materials, tools, and vehicle expenses. If you're doing commercial work, your clients may require you to be GST-registered regardless of your turnover.

Once registered, you lodge a Business Activity Statement (BAS) quarterly or monthly. The BAS reports your GST collected, GST paid, and PAYG withholding. Many tradies use an accountant or BAS agent to handle this, the penalties for getting it wrong can be significant.

PAYG withholding

If you hire employees (even family members), you must register for PAYG withholding, withhold tax from their wages, and report it to the ATO through your BAS. This applies regardless of your business structure. The penalties for failing to withhold or report are strict, the ATO actively pursues directors for unpaid PAYG.

If you're a sole trader and work through a labour hire agency, check whether they're withholding PAYG on your behalf. Some agencies treat tradies as employees for tax purposes, which simplifies things. Others treat you as a contractor, which means you need to manage PAYG yourself.

When to Incorporate, The Revenue Threshold Decision

Here's the honest answer most accountants won't give you in a 15-minute consult: for most tradies, sole trader is the right structure until your net profit consistently exceeds $150,000–$200,000. Below that, the compliance costs of a company eat into the tax savings.

But revenue isn't the only factor. Here's when to consider switching:

• Your personal asset exposure worries you. If you're doing high-value renovations, structural work, or anything with significant defect risk, the asset protection of a company or trust becomes valuable regardless of revenue.
• You're employing multiple people. Once you have employees, a company structure provides clearer separation between personal and business liabilities and simplifies payroll.
• You want to sell the business later. A company is easier to sell than a sole trader business. Buyers purchase shares, not just assets and goodwill.
• You're consistently turning down work because you're too busy. This is a sign you need to scale, and a different structure supports that growth.

The insight: Don't incorporate just because someone told you it's "more professional." A $30/mo TradesPro website does more to make you look professional than a Pty Ltd structure. Incorporate when the tax maths works and you need asset protection, not as a status symbol.

The best move is to talk to a trade-specialist accountant. They'll run the numbers on your specific situation, projected profit, trade risk, employment plans, and recommend the structure that saves you the most after accounting for compliance costs. A good accountant pays for themselves in the first conversation.