Making the change: Moving from sole trader to company

October 12, 2023

Sole trader vs company: What's the best option for you?

It's a decision many Ipswich small business owners will consider at some point, particularly as their business grows. But what are the benefits? Why should you make the change from sole trader to company.

Which stage of the business journey are you at?

Many individuals start out their business careers as sole traders. The reasons are many, but mainly, it's simple, easy to understand and an inexpensive way to start out.

However, as your business grows, the benefits of limited liability become clearer, and if your annual profits start to increase into a higher tax bracket, then it’s a good time to start thinking about changing to a company structure.

Benefits of a company structure

You may even have a grandiose idea or a business model that would succeed better with investors or partners. A sole trader structure does not position yourself to aid this prospective growth/expansion.

Trading as a sole trader, you are legally responsible for all financial aspects of your business. If things go wrong, your personal assets can be seized to pay off any debts.

Companies are separate legal entities, as a director of a company your personal liability can be limited, if something goes wrong in your business (in most instances this may be financial disaster/difficulty).

The obvious detractor from operating via a corporate structure is that there are more legal, tax and compliance responsibilities to adhere to; which can translate into more time, effort and money required at your end. BUT ... don’t let this put you off – the pros often outweigh the cons when considering such a move.

Reasons to make the switch

You experience significant growth & surge in profits e.g. Once earning over $180,000 your marginal rate of tax climbs to 45% + Medicare Levy. The corporate tax rate for a base rate entity is 25%. Hence if sales are booming, your services are in high demand, your equipment is yielding huge hiring revenues – consider the move to a company.

You've got this great idea, invention or IP that you have generated but will need investors to get to market. Investors can easily see what percentage of the business they are investing in and where their investment is going via the issuance of shares in company structure.

You might be in a higher risk industry and want to minimise your exposure to the downside, or work in areas of tight margins, exposed to litigation risk, engage an abundance of contractors and employees .... if so, it’s time to consider incorporating. Such scenarios are often presented to those working in the professional services, medical industry, labour hire/recruitment and building/construction game to name a few.

Improving commercial opportunities – we live in a world of perception, many sole traders have great business’s but often if want to be taken seriously, want to work with the bigger players/clientele, then to give yourself a chance you may need to incorporate. This may not seem fair, however it’s a fact a lot of organisations do only deal with corporations and will treat you as the "real deal".

Reasons to make the switch

So ... once you’ve decided you want to move from a sole trader to a company there is still plenty of work that needs to be done across the board. You Sammut Bulow Ipswich accounting professionals are here to help you make it happen.

Here's a handy list

You’ll need a new ABN.
Bank details to change (may need to restart/transfer direct debits)
New accounting software/payroll file
Invoices, letterheads, email signature, client agreements will change.
Need to decide on shareholding structure.
If transferring assets e.g., goodwill, equipment – need to consider tax implications of doing so.
Clients and suppliers will need notifying.
Insurances will need amending/transferring.
Transfer or create new subscriptions, professional membership, business name registrations.
Borrowing capacity may be impacted in short term due to change in trading structures.
May need to transfer staff and obligations that come with that e.g., Super, Workcover, Employment Agreements/Contracts, leave balance considerations.
QBCC licences need changing (if building/construction)
The way you remunerate yourself will need tweaking – wages+ Super/dividends/ loan agreements – can’t just treat as drawings.
How you manage your BAS and income tax obligations will change, understand tax obligations and monies need to retain for year end and ongoing activity statement compliance.

Sammut Bulow are your trusted Ipswich Accountants; working with you every step of the way. We can assist with business taxation and compliance, business advisory, self-managed superannuation, bookkeeping and more. Reach out to our friendly team below.

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Key Takeaways From The 2025-26 Australian Federal Budget

March 27, 2025

The Australian Government’s 2025-26 Federal Budget, unveiled earlier this week, has certainly grabbed attention with its proposed personal income tax cuts. The tax savings will be gradual, with up to $268 in savings for individuals in the 2026-27 year, and up to $536 from 2027-28 onwards. The Government has allocated almost $1 billion to the Australian Taxation Office (ATO) to enhance its compliance programs. While this is aimed at improving the integrity of the tax system, businesses and individuals alike should be prepared for an increased focus on compliance as the ATO ramps up its efforts to ensure tax obligations are met. Other Key Budget Measures You Should Know About Tax on Super Accounts Over $3 Million: The proposed 30% tax on future earnings for superannuation balances above $3 million is still under consideration. If passed, it would affect high-balance super accounts, potentially reshaping the landscape of superannuation for some investors. Small Business Support: The $20,000 instant asset write-off for small businesses remains in the Budget for the 2024-25 financial year. While the measure has not yet passed Parliament, it could provide a valuable tax incentive for businesses investing in assets to grow their operations. Healthcare and Education Initiatives: The Government has allocated $8.5 billion for Medicare, including funding for 50 new urgent care clinics and bulk-billed GP services. On the education front, $500 million will go towards reducing HECS-HELP debt and adjusting repayment schedules, helping students manage their debts more effectively. Energy and Housing Relief: There’s also $180 billion dedicated to extending the $150 energy bill rebate until the end of 2025, alongside $800 million for the "Help to Buy" housing scheme, making it easier for Australians to step onto the property ladder. Economic Outlook: Slow Growth and Ongoing Deficits The Australian economy is projected to grow at a modest pace, with GDP growth forecasts at 2.25% for 2025-26 and 2.5% for 2026-27. While employment remains strong, with over one million jobs added since May 2022, the country is still facing a budget deficit of $42.1 billion in 2025-26. Public debt is expected to rise as a result, reaching 21.5% of GDP by 2025-26. Despite these challenges, the Government has also put forward measures to assist with the rising cost of living, including energy rebates and initiatives aimed at reducing inflation. What Does This Mean for You? Whether you’re an individual looking to take advantage of the tax cuts, a small business seeking clarity on asset write-offs, or someone looking to benefit from the energy rebates or housing support, the 2025-26 Federal Budget is likely to affect you. If you need advice on tax planning, superannuation, or any of the new measures, our team of experts is here to assist. Disclaimer: The information provided on this blog is for general informational purposes only. While we strive to ensure that the content is accurate and up to date, the advice and information provided on this site should not be construed as a substitute for consulting with a qualified accounting or tax professional. The authors and contributors to this blog do not accept any responsibility or liability for any errors or omissions in the content, or for any losses or damages arising from the use of the information provided.