Should I set up a company?
You wouldn’t believe how many people ask me this.
Often after paying thousands to “business coaches” who confidently recommend setting up a company — despite having no qualifications in tax, accounting or company law.
And then I get the “just a quick question” email from a client asking me to explain the reality.
(Not charged. My choice.)
Because a company isn’t the magical business elixir people are being sold.
The Company Tax Rate: Sounds Sexy, But…
One of the biggest reasons people rush into companies is hearing:
“Companies only pay 25% tax.”
Sounds great.
But here’s the bit people conveniently leave out:
A company pays 25% tax from the very first dollar of profit.
Individuals (sole traders) are taxed on a tiered system.
Current Australian resident individual tax rates are broadly:
First $18,200 = tax free
Then 16% up to $45,000
Then 30% up to $135,000
Then 37%
Then 45%
So before you get excited about the company tax rate, you need to actually look at your taxable income.
And another important point:
If you need every dollar your business earns to live on personally, company or not, you’ll generally end up paying individual tax rates anyway once the money comes out of the company structure.
Sole Trader: Drawings vs Taxable Income
A lot of people misunderstand this.
As a sole trader:
You are the business. There is no legal separation.
What you take out of the bank account is called drawings.
It is not a wage.
It is not a tax deduction.
Your tax is based on:
Profit = Income minus expenses
Not on how much you “paid yourself.”
You could take out:
all the money,
none of the money,
or random amounts throughout the year —
and your taxable income is still based on the business profit.
Companies: Taking Money Out Is Different
A company is a separate legal entity from you personally.
So the moment you take money out of the company, it generally needs to be treated properly as one of the following:
Wage
Including:
PAYG withholding
Superannuation
WorkCover obligations
Director’s Fees
Including:
PAYG withholding
Super obligations
Loan
Which can involve:
minimum repayments
interest requirements
compliance rules
This is where people suddenly realise running a company is more complex than the Instagram reel made it sound.
Are You Earning Personal Services Income (PSI)?
This is another massive issue that gets ignored online.
If clients are paying primarily for:
your skills,
your time,
your expertise,
rather than products, staff, systems or business infrastructure, there’s a good chance you may be earning Personal Services Income (PSI).
And if you don’t meet certain tests set by the ATO, then regardless of what structure you operate through, the tax office can effectively tax you like an individual anyway — and deny certain deductions.
So simply “having a company” does not automatically create magical tax savings.
So When Does a Company Make Sense?
A company structure can absolutely be the right choice in the right circumstances.
For example:
You want legal separation between yourself and the business
There are multiple owners
You’re bringing in investors
You want clear ownership structures
You’re building something designed to scale
You want to retain profits inside the business
The key point is this:
Structure should match strategy.
Not trends.
Not TikTok.
Not business coach hype.
Stop Letting Hype Decide Your Tax Structure
Your business isn’t a trend.
It’s your livelihood.
If you want advice about business structures, make sure it’s coming from someone actually qualified in:
tax,
accounting,
company law,
and practical business operations.
Not someone who watched three reels and decided everyone needs a company.
Financial Advice Disclaimer
The information provided in this article is general information only and does not constitute personal financial advice.
Tally Finance is not a licensed financial services provider, and the content is not tailored to your personal financial situation, goals or needs.
Before making any financial or investment decisions, you should seek advice from a qualified and licensed financial adviser.
Tally Finance does not accept liability for any loss or damage incurred as a result of relying on the information provided.
Kimberlee Brown
B COM (ACC) LLB CPA
T/A TALLY
ABN 81 010 351 330
Registered Tax Agent 26052112
