One of the most common questions we hear from growing business owners is a simple one: "Should I incorporate?" It feels like it should have a simple answer, but it genuinely depends on your income, your plans for the profit, and how much risk and administration you are willing to take on. The numbers also look different in 2026 than they did five years ago, so it is worth working through carefully rather than copying what a friend did.
How the two structures are taxed
As a sole trader, your business profit is simply added to your other income and taxed at your personal marginal rate. Once your taxable income climbs above $190,000, the top marginal rate of 45% applies (plus the 2% Medicare levy), so the last dollars of a strong year can be taxed at around 47%.
A company is taxed very differently. A base rate entity — broadly, a company with an aggregated turnover under $50 million and mostly active business income — pays a flat 25% company tax rate. That flat rate does not climb as profits grow, which is the heart of the appeal.
The catch: the money is not yours yet
The 25% rate only tells half the story. Profit taxed inside a company is the company's money, not yours. When you take it out as a wage or a dividend, you pay tax personally, and the franking credit system credits you for the company tax already paid so the profit is not taxed twice. In other words, the company rate is a genuine saving mainly when you retain and reinvest profit in the business. If you draw out everything you earn each year, much of the apparent advantage disappears once you have paid yourself.
Incorporating is not free
A company brings real costs and obligations that a sole trader does not carry:
- ASIC registration and annual review fees
- Higher accounting and bookkeeping costs — a separate company tax return, financial statements and often a separate set of books
- More compliance generally, including director obligations and, if you pay yourself a wage, payroll and super
These are manageable, but they mean a company only makes sense once the tax saving comfortably outweighs the extra cost.
Where the crossover usually sits
Based on our modelling, incorporation typically starts to make financial sense when business profit is consistently above roughly $80,000 to $100,000 a year — and the case gets stronger the more profit you retain in the business rather than drawing out. Below that level, the extra cost and admin of a company often outweigh the tax benefit, and the simplicity of being a sole trader wins.
It is not only about tax
Tax is one input, not the whole decision. A company is a separate legal entity, which provides a layer of limited liability that a sole trader does not have — valuable if your work carries genuine risk. Structure also affects how easily you can bring in a business partner, sell down the track, or separate the business from your personal affairs. For some owners, a trust or a company-as-trustee structure fits better than either a plain sole trader or a plain company.
The bottom line
There is no single right answer. The right structure depends on your numbers, your risk, and where you want the business to go — and it can sensibly change as you grow. The most expensive mistakes we see are people incorporating too early for a small saving, or staying a sole trader long after a company would have served them better.
If you would like us to model both structures against your real numbers before you decide, that is exactly the kind of question our team enjoys. Book a chat at nebulaaccounting.au or call 0433 822 227.
This article is general information only and does not take account of your personal circumstances — it is not personal tax, financial or legal advice. Tax laws change and apply differently to different people. Nebula Accounting Pty Ltd is a registered tax agent (No. 26259377); please speak with us or check with the ATO before acting.