Sole trader or company tax rate

I know a number of people who have formed a company structure for their small business because of the perceived tax benefit compared to an individual’s margin tax rate.  At what earnings level are the two entities taxed at the same amount?

In 2018/2019 tax year, the small business company tax rate is 27.5%.  Personal tax rates are tiered started at nil for amounts under $18,200 up to 45% on each $1 over $180,000 plus a Medicare levy.

At around $108,700 of taxable income, the tax payable is the same.

So, what does this mean? Nothing much on its own however, if you think you’re saving tax and continue to earn less than this amount as a company, you may want to rethink your entity’s form. There are advantages and disadvantages of both structures and tax alone shouldn’t be your reasoning for selecting a particular business structure.  Have some questions? Please speak to your accountant or call us at LJC Accounting.