Blog · Business structures

Sole trader, partnership, company or trust? Choosing a business structure in 2026

By Blake Land, Director · 10 October 2026

Choosing a business structure means trading off tax, risk, cost and paperwork. In 2026 the decision got more interesting. The 50% CGT discount is being replaced from 1 July 2027, and the Government has released draft laws for a 30% minimum tax on discretionary trusts.

This guide compares the four common structures, explains what has changed, and walks through three short scenarios.

The four structures at a glance

Sole trader

You and the business are the same legal person. Business profit is added to your other income and taxed at your marginal rates. Set-up is simple and cheap.

The downside is unlimited personal liability: if the business owes money or is sued, your personal assets (including your home) are exposed. You also can't split income with family.

Partnership

Two or more people (or entities) carry on business together. The partnership lodges a tax return but doesn't pay tax itself; each partner is taxed on their share at their own rates. Partners are generally liable for partnership debts, including those incurred by the other partners, so a written partnership agreement is essential.

Company

A company is a separate legal entity. It pays tax on its own profits, and you're paid as an employee (wages), as a shareholder (dividends) or both. Liability is generally limited to the company's assets, although directors can still be personally liable in some situations, such as personal guarantees to banks and suppliers.

Every director needs a director ID, and you must apply for it before you're appointed. ASIC has flagged that from 1 July 2027, companies will need to provide director IDs to ASIC.

Trust

A discretionary (family) trust is a relationship, not a legal entity. A trustee (often a company) runs the business for the beneficiaries. Each year the trustee can decide how to distribute income among beneficiaries, which is the main tax attraction. Income that isn't distributed is generally taxed in the trustee's hands at the top marginal rate.

A company as trustee adds asset protection. Our article on family trusts explained goes into more detail.

Sole trader vs company: tax rates for 2026-27

The 16% personal rate dropped to 15% from 1 July 2026 (and is legislated to drop to 14% from 1 July 2027). Resident rates for 2026-27 are:

These rates don't include the 2% Medicare levy. As a quick example, a sole trader with $100,000 of taxable income pays $20,520 in income tax before offsets and the Medicare levy.

Companies pay a flat rate:

• 25% for a base rate entity (aggregated turnover under $50 million and no more than 80% of assessable income being passive income such as rent, interest or capital gains)
• 30% for other companies.

When profits are paid out as franked dividends, shareholders pay tax at their own rate with a credit for company tax already paid. So a company mainly helps when you can leave profits in the business to fund growth.

Division 7A: the company trap

Money in a company isn't your money. If a private company lends money or pays private expenses for a shareholder (or their associate), Division 7A can treat it as an unfranked dividend unless it's put on a complying loan agreement. The 2026-27 benchmark interest rate is 8.77%. Using the company account for personal spending is one of the most costly mistakes we see.

Personal services income

If most of your income comes from your own personal skills or effort, such as a consultant or contractor, the personal services income (PSI) rules may apply. Unless you pass a personal services business test, that income is generally taxed to you personally, even if earned through a company, partnership or trust.

Set-up and running costs

ASIC fees rose on 1 July 2026. A business name costs $47 for one year or $108 for three. On top of government fees, budget for the constitution, trust deed or partnership agreement, plus separate accounts and a tax return each year.

QBCC implications for builders

Your structure affects your QBCC licence, not just your tax. Contractor licensees must meet minimum financial requirements at all times, including net tangible assets (NTA) and a current ratio of at least 1:1.

• Individuals in the smallest categories (SC1, up to $200,000 maximum revenue, and SC2, up to $800,000) no longer have to lodge annual financial reports, though they must still meet their NTA and revenue limits.
• Company licensees in SC1 and SC2 still have to lodge annual financial reporting.
• If a company is trustee of a trust, the QBCC counts only the trustee company's own assets for NTA, not the assets held in the trust. A deficiency in the trust is treated as a liability of the trustee.

That last point catches out builders who set up a trust structure without planning their NTA. See our QBCC accountant for builders page and our guide to QBCC annual financial reporting.

How the 2026 reforms change the decision

CGT discount replaced from 1 July 2027 (now law)

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships is replaced with cost base indexation and a 30% minimum tax on capital gains. Gains accrued before 1 July 2027 keep the 50% discount (where the usual conditions are met), based on the asset's value at that date.

This narrows a long-standing advantage that sole traders, partnerships and trusts had over companies when selling a business or investments. Consider valuations of key assets as at 1 July 2027.

Small business CGT concessions stay

The four small business CGT concessions remain. From 1 July 2027, the turnover threshold for the 50% active asset reduction rises from $2 million to $10 million. The other three concessions (15-year exemption, retirement exemption and rollover) keep the $2 million turnover test, with the $6 million maximum net asset value test as the alternative.

Proposed 30% minimum tax on discretionary trusts (not yet law)

Treasury released exposure draft legislation on 3 September 2026 for a 30% minimum tax on discretionary trusts from 1 July 2028. This is not yet law and may change. Under the draft:

• the trustee pays the minimum tax, and non-corporate beneficiaries get a non-refundable credit for it
• corporate beneficiaries ("bucket companies") don't get that credit
• a three-year restructure rollover would be available from 1 July 2027 to move assets out of a discretionary trust
• an alternative election would let an existing trust avoid the minimum tax by making fixed-percentage distributions to nominated beneficiaries, without a restructure.

The Government says fewer than 10% of small businesses will be affected in any given year. If income splitting is your main reason for a trust, consider waiting for the final rules.

When should you restructure?

Common triggers include profits well above what you need to live on, taking on staff or bigger contracts, growing personal risk, a new business partner, or planning a sale. Restructuring can trigger CGT and stamp duty, so timing matters. With the CGT changes and the proposed trust rollover both starting 1 July 2027, the next 12 months is a good window for a review.

Three quick scenarios

A tradie starting out. Jake is a newly licensed carpenter on the Sunshine Coast expecting about $90,000 profit. A sole trader structure keeps costs and QBCC reporting low, and his profit sits in the 30% bracket. Once profits grow and he wants asset protection, a company may suit, but he'll need to plan for the company's own NTA and annual QBCC reporting.

A growing café. Mia's café has 12 staff, a lease and profits she wants to reinvest in a second site. A company limits liability and taxes retained profits at 25%. From 2026-27, eligible companies can also carry back a tax loss against tax paid in the previous two years. She'll need tight bookkeeping to avoid Division 7A problems.

A consultant with investments. Sam earns most of his income from one client and holds a share portfolio. The PSI rules likely limit any benefit from a company or trust for his consulting income. For his investments, the CGT changes and proposed trust minimum tax mean any new structure should be modelled first.

How we help

We help small business owners across the Sunshine Coast choose the right structure, set it up and keep it compliant. We can:

• model the tax outcome of each structure using your real numbers
• review existing structures against the CGT reforms and proposed trust changes
• prepare QBCC financial reporting for builders and trades.

Learn more about our business structure and entity setup service, or book a business advisory meeting.

Frequently asked questions

General information only. It doesn't consider your personal circumstances, so get advice before acting.