Should I set up a company? The 8 questions every growing business owner asks (2025-26)

Once a business starts making real money, the same question turns up: should I put this in a company?

Most answers to it are either a sales pitch or a wall of tax law. So here it is as the questions people actually ask, answered plainly — starting with the one rule that makes the whole thing simple.

(Figures are FY2025-26 unless tagged otherwise. General information only, not personal advice.)

The one rule that decides everything

Whatever you take out of the business is taxed the same either way. Only what you leave in is treated differently.

That’s it. If you pay yourself $140,000, that $140,000 is taxed at your personal rates whether you’re a sole trader or a company director. It cancels out. It doesn’t matter.

What does matter is the profit you don’t take home — the money you leave in the business to buy stock, hire someone, or just build a buffer. As a sole trader that profit is taxed at your marginal rate, whether you touch it or not. In a company it’s taxed at 25%.

So the only question worth asking is: how much do you leave in?

1. At what point is a company actually worth it?

Work out your marginal rate, and the gap does the rest. Including the 2% Medicare levy, the rates are 18%, 32%, 39% and 47%. Against a company’s 25%:

Your marginal rate	The gap	You save per $10,000 left in the business
32% — income $45k–$135k	7 points	$700
39% — income $135k–$190k	14 points	$1,400
47% — income over $190k	22 points	$2,200

Find your row, multiply by how many lots of $10,000 you actually leave behind, and you have your answer before you speak to anybody.

Two things fall straight out of that table. If you spend everything you earn, you leave nothing in, and a company saves you nothing — it just costs you money. And the lower your income, the smaller the gap: at 32% you need to retain a lot before it’s worth the paperwork.

2. How much will I really save?

A worked example, deliberately simple.

Your business makes $190,000 profit. You take out $140,000 to live on. You leave $50,000 in.

That $50,000 sits between $140,000 and $190,000 of income, so as a sole trader it’s taxed at 39% — the 37% bracket plus the Medicare levy.

The $50,000 you left in	Tax
As a sole trader — 39%	$19,500
In a company — 25%	$12,500
Difference	$7,000

Check it yourself: 39 − 25 = 14 points, and 14% of $50,000 is $7,000. The numbers work exactly, because that $50,000 sits inside a single tax bracket.

The first $140,000 doesn’t appear anywhere in that comparison — it’s taxed identically both ways.

3. Will I get taxed twice?

No — but you will eventually top up.

When the company pays that retained profit out to you as a fully franked dividend, you don’t pay the full rate again. You gross the dividend up, claim a credit for the tax the company already paid, and pay the difference between 25% and your own rate.

Using the same numbers: the company keeps $50,000, pays $12,500 tax, leaving $37,500. Pay that out as a franked dividend and you get a $12,500 franking credit; grossed up, it’s $50,000 of income. At 39% the tax is $19,500, less the $12,500 credit — you pay $7,000. Total across both stages: $19,500. Exactly what you’d have paid as a sole trader.

So the $7,000 is a deferral, not a discount. It’s the use of that money in the meantime — and if the money is working in your business, that’s genuinely valuable. But nobody should sell it to you as free money.

And it can run the other way. If your rate in the year the dividend is declared is below 25%, the franking credit can be worth more than the tax you owe — and for residents, excess franking credits are refunded in cash. That matters in a quiet year, a year off, parental leave, semi-retirement, or for a spouse or adult child who is a genuine shareholder with little income.

Someone whose only income for a year is a fully franked dividend of $30,000 cash carrying $10,000 of credits — $40,000 grossed up — pays a few thousand dollars of tax against $10,000 of credits, and gets the rest back.

That’s the real advantage: a company lets you choose which year the profit reaches you. A sole trader has no such choice.

4. How do I actually pay myself?

Three legitimate routes, and most owners use a mix of the first and third.

Route	Company gets a deduction?	Super payable?	PAYG withholding?
Salary or wages	Yes	Yes — 12%	Yes, plus STP reporting
Directors’ fees	Yes	Yes	Yes
Franked dividend	No — paid from after-tax profit	No	No

A few things worth knowing:

Super is not optional. Super law extends “employee” to a director being paid for their duties, so your salary or directors’ fees attract the 12% super guarantee — paid to yourself, but paid.
Dividends carry no super and no withholding, but they come out of profit the company has already paid tax on, which is why they carry the franking credit.
Most owners run a salary that covers living costs — it’s deductible to the company and predictable — and take the rest as dividends.
Quote your TFN. Directors’ fees with no TFN are withheld at 47%.

The contrast is the point: a sole trader can’t pay themselves a wage at all. You’re taxed on the profit whether you draw it or not.

5. Can I just take money out of my own company?

No, and this is the most expensive habit to break.

As a sole trader, the business account is your account. In a company, money you take that isn’t salary, directors’ fees or a properly franked dividend can be treated as a deemed dividend under Division 7A — taxable to you, and often unfranked, so no credit to soften it.

The fix is a complying Division 7A loan agreement with minimum yearly repayments at the benchmark rate, which is 8.77% for the year ending 30 June 2027 (up from 8.37%). Workable, but a real obligation with real deadlines.

If you can’t reliably keep “the business’s money” separate from “my money”, that’s a genuine reason to wait.

6. Will I lose the 50% CGT discount when I sell?

This was, for twenty-five years, the strongest argument against companies: a company gets no 50% CGT discount, so selling a business or an appreciating asset out of one cost more.

That’s changing, and it’s already law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed on 25 June 2026 and received royal assent the next day. From 1 July 2027:

the 50% discount is replaced for individuals, trusts and partnerships with cost base indexation plus a 30% minimum tax rate on capital gains
gains accrued before that date are grandfathered — assets held across it get split treatment
it reaches all CGT assets, including pre-1985 ones
companies and super funds are unaffected

So from July 2027 an individual faces a 30% floor on capital gains while a base rate company pays 25%. The historic penalty on companies narrows sharply.

But don’t flip the answer either. The small business CGT concessions survive untouched — the 15-year exemption, the 50% active asset reduction, the retirement exemption and the rollover. For a genuine small business sale those were always the main event, and they still run on the old rules. And getting a gain out of a company still attracts the same top-up mechanics as any dividend.

The honest position: the classic reason to avoid a company is much weaker from 1 July 2027, but it hasn’t vanished. If you were told “never put appreciating assets in a company”, that advice was formed under rules that change in under a year.

7. What does it cost — and what do I get?

The costs are real and they repeat. ASIC charges registration of from about $640 and a standard annual review fee of around $340 (FY2026-27, CPI-indexed each 1 July). With a constitution, share structure, registrations and advice, a realistic set-up sits in the range of roughly $1,000–$2,500.

Then every year: a company tax return, financial statements, the ASIC review, tighter bookkeeping and a separate compliance cycle. Budget roughly $2,000–$5,000 a year on top of what you already pay. Get it quoted rather than guessed — it depends on how clean your records are.

What you get:

Deferral on retained profit — 25% instead of your marginal rate on money you reinvest
Control over timing — you choose which year profit reaches you, and franking credits can be refunded when your rate is low
Dividends to genuine family shareholders, taxed at their own rates — this needs real ownership and a commercial rationale, and the anti-avoidance rules apply, so structure it properly rather than retrofitting it
Limited liability for trading risk
Credibility and access — bigger clients, tenders, insurers and lenders often prefer a company
Sellability and succession — shares transfer; the business can outlive you

The test is simple: if the saving doesn’t clearly beat the annual cost, the answer this year is no.

Does a company protect my house?

Partly — and the gaps matter. A company is a separate legal person, so trading debts sit with it rather than you. But limited liability won’t help where you’ve signed a personal guarantee (banks, landlords and major suppliers routinely require one), and it won’t cover breached director duties, insolvent trading, or director penalty notices, which make directors personally liable for unpaid PAYG withholding, GST and super.

Blunt version: if your real risk is professional negligence or injury, insurance protects you far more than structure does.

Three things that change the answer

If you’re essentially selling your own labour, the personal services income rules can attribute the income straight back to you and the company may achieve nothing. Check this first.
Losses behave differently. A sole trader’s loss may offset other income, subject to the non-commercial loss rules. A company’s losses are trapped until it profits.
You can change later. The small business restructure rollover may allow a move into a company without an immediate CGT bill — so “not yet” doesn’t close the door.

What to do this month

Work out how much profit you actually leave in the business. That number drives everything.
Find your row in the table above and multiply it out.
Get the PSI question answered before spending anything on structure.
Ask what it costs annually, not just to set up.
If you go ahead, build the discipline on day one — separate accounts, a salary, and a plan for how money comes out.

A company suits a business that keeps and reinvests profit, carries real risk, and is going somewhere. It’s an expensive habit for a business that doesn’t.

General information only, current at July 2026. It doesn’t take your circumstances into account, and structure decisions are expensive to unwind. Confirm your position with a registered tax agent before acting.