Sole Trader vs Pty Ltd vs Trust: Tax Comparison Calculator
Should you incorporate? Add your annual business profit and see net family cash for all three Australian
business structures side by side, with a breakeven chart showing where the answer changes. 2025-26 tax rates.
Based on 2025-26 ATO tax rates. Pty Ltd modelled as a Base Rate Entity (25% rate). Trust splits between
adult beneficiaries you nominate.
Net profit after business expenses but before tax.
Salary, dividends, rent etc. outside this business.
Used when modelling a discretionary trust split with your spouse.
Enter your annual business profit to compare structures
Tax Accuracy & Sources
Reviewed: March 2026 · Tax year: 2025-26
This calculator is an estimate tool and may not cover all personal circumstances. For state-based taxes, confirm details with your state or territory revenue office.
Each structure runs through the same tax engines used by our individual calculators. Sole trader uses personal
income tax, Medicare levy, and HELP repayments. Pty Ltd applies the 25% Base Rate Entity rate, then distributes
after-tax profit as a fully franked dividend — the franking credit gross-up correctly preserves dividend
imputation, including the refundable offset when the owner's marginal rate is below 25%. Discretionary trust
splits the profit between adult beneficiaries you nominate (default: you + your spouse) and taxes each share
independently.
Where each structure wins
Sole trader — wins under about $80,000 profit because there are no setup or annual
compliance costs to overcome. Simplicity is the value.
Pty Ltd — wins when you can leave profits inside the company at 25% instead of
distributing them at your marginal rate. The deferral advantage starts mattering above ~$135,000 with
consistent retained earnings — not modelled here, but flagged in the assumptions panel.
Discretionary trust — wins at $150,000–$400,000 profit when you can split with a
spouse on a low income, because each share is taxed in lower brackets.
What this tool actually answers
It answers a single, focused question: with this much annual profit, which structure leaves more cash with
my family this year? It does not advise on asset protection, succession, capital gains rollover on
incorporation, payroll tax thresholds for owner salaries, or bucket company strategies — see an accountant
for those decisions.
When does it make sense to switch from sole trader to a Pty Ltd company?
With full dividend payout, sole trader and Pty Ltd are roughly tax-neutral at every profit level because dividend imputation cancels out the company tax. The real Pty Ltd advantage comes from retaining profits inside the company at the 25% Base Rate Entity rate instead of distributing them and paying your marginal rate. That deferral matters once your profit consistently exceeds about $135,000 — the top of the 30% personal bracket. Below that, the ~$3,200 annual running cost of a Pty Ltd usually wipes out any saving.
Why does a discretionary trust often beat both sole trader and Pty Ltd at higher profits?
A trust lets you split income across multiple adult beneficiaries (typically you and your spouse), so each share is taxed in lower brackets. At $200,000 profit split between two beneficiaries with no other income, each pays tax on $100,000 instead of one person paying tax on $200,000. That means staying inside the 30% bracket instead of being pushed into the 37% bracket. The savings get bigger as your profit grows, until you start hitting the 45% top bracket on each share.
Does the calculator account for setup and running costs?
The headline three-card comparison is pure tax math. The 'Real-world running costs' panel below the chart shows typical setup and annual costs for each structure — you need to subtract these from the apparent tax savings to find your true breakeven. A Pty Ltd costs roughly $3,200 a year more than a sole trader to run, so you need at least $3,200 in tax savings before switching makes sense in practice.
Why does the Pty Ltd column sometimes show a refund?
This happens when the owner's marginal personal tax rate is below the company's 25% rate. The franking credit attached to the dividend exceeds the personal tax owed on the grossed-up dividend, and the surplus comes back as a cash refund. At low profit levels (under about $50,000) with no other income, this refund means the Pty Ltd structure can have a slightly lower effective tax rate than being a sole trader — though the running costs usually still cancel the saving.
What does this calculator NOT model?
It doesn't model bucket-company strategies (where a trust distributes to a corporate beneficiary), salary-vs-dividend optimisation for owner-managers, CGT on incorporation rollover, asset protection benefits, or multi-year retained-earnings deferral. It also assumes the Pty Ltd qualifies as a Base Rate Entity (turnover under $50M, passive income 80% or less). For more complex structuring decisions, see your accountant.