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Sole trader vs company tax comparison

Compare after-tax cash in hand as a sole trader versus operating through a company, at a given profit level.

$
$
If using a company, profit is

Company structure wins

$2,338

Sole trader net cash
$110,162
Company structure net cash
$112,500
Sole trader
Taxable income$150,000
Income tax (incl. Medicare)-$39,838
Net cash in hand$110,162
Company (25% rate)
Company tax-$37,500
Retained in company$112,500
Net cash in hand$112,500
  1. 1

    Taxed profit as a sole trader

    The full $150,000 profit is taxed at your individual marginal rates (brackets, LITO, Medicare levy), as if it were your only income.

    $39,838.00

  2. 2

    Applied the company tax rate

    Turnover of $500,000 is under the $50m base rate entity threshold, so the 25% company tax rate applies.

    $37,500.00

  3. 3

    Profit retained in the company

    After company tax, $112,500 remains in the company and is not yet taxed in your hands — this defers (but doesn't avoid) further tax until it's eventually distributed.

    $112,500.00

  4. 4

    Compared net cash in hand

    The company structure leaves you with $2,338 more after tax at this profit level.

    $2,338.00

Assumptions

  • Assumes the business profit is the taxpayer's only taxable income for the year (no other salary or investment income stacked on top).
  • The 25%/30% company rate split uses only the aggregated turnover test — the '≤80% passive income' base rate entity condition is not modelled.
  • Fully franked dividend modelling assumes the shareholder's only income is the dividend itself, and that all franking credits are usable (no Division 7A loan, trust, or multiple-shareholder complexities).
  • Retained profit is shown net of company tax only — further tax may apply whenever it is eventually distributed.