Most freelancers start as Sole Traders because it's cheap and easy. But as your income grows, the "Company" structure (Pty Ltd) becomes attractive. When is the right time to make the switch?
The Case for Sole Trader
- Cost: Free to set up (just an ABN). No ASIC fees.
- Simplicity: You report business income on your personal tax return.
- Control: You have total control and access to your money.
- Drawback: Unlimited liability. If the business is sued, your personal assets (house, car) are at risk. Taxed at individual marginal rates (up to 47%).
The Case for Company (Pty Ltd)
- Asset Protection: The company is a separate legal entity. Your personal assets are generally protected from business debts.
- Tax Rate: Small/Base rate entities pay a flat 25% corporate tax rate (as of 2025). This is much lower than the top marginal personal rate.
- Growth: Easier to raise capital or bring on partners.
- Drawback: Higher setup costs ($1k+) and annual ASIC fees. More complex accounting and reporting. Money in the company is not "yours"—you must pay yourself a wage or dividend.
The Tipping Point
A common rule of thumb is that a Company structure becomes tax-effective when your profit exceeds roughly $100,000 to $120,000 per year. At this point, the tax savings from the 25% corporate rate often outweigh the additional accounting and compliance costs.