Tax differences between a sole trader and a company

The full company tax rate is 30%.

Different company tax rates apply to companies that are base rate entities.

You can keep up to date with any changes to company tax rates on the Australian Taxation Office website.

A company tax return needs to be lodged each year if you operate with a company business structure.

Company tax returns must show:

• the company’s income
• deductions
• income tax the company is liable to pay

As a separate legal entity, the company must lodge its own tax return and pay tax on income. If you are a director or employee of your company, you still need to lodge your own individual tax return.

A capital gain or capital loss is the difference between what it cost you to get an asset and what you received when you disposed of it. If you made a capital gain from disposing an asset (for example, selling an asset) you owned for at least 12 months, you may be able to reduce the capital gain through: 

• the discount method
• the indexation method
• 1 or more of the 4 CGT concessions available for small business

Generally, the discount method does not apply to companies when calculating capital gains, although it can apply to a limited number of capital gains made by life insurance companies.

If your company (other than a listed investment company) meets the conditions of the indexation method for calculating your capital gain, you must use the indexation method.

Small business tax concessions are available to any business structure type. For tax purposes, you are a small business entity if you:

• operate a business for all or part of the income year
• have less than $10 million aggregated turnover.

Your business activities determine which taxes and superannuation you may need to pay and report.

You need to register for goods and services tax (GST) if you either:

• have a GST turnover of $75,000 or more ($150,000 for a non-profit body)
• provide taxi or limousine travel for passengers (including ride-sourcing) regardless of your GST turnover
• want to claim fuel tax credits for your business.

You may also need to pay your income tax through pay as you go (PAYG) instalments.

If you have employees, you will also need to:

• collect PAYG withholding amounts from payments you make to them, and give and report the withheld amounts to the ATO
• pay superannuation contributions for your eligible employees. Read about super for employers on the ATO website

If your employees receive a fringe benefit, you may also need to pay fringe benefits tax.