Sole Trader vs Pty Ltd for Plumbers — Which Structure is Right?
Summary (TL;DR)
Stay as a sole trader if your taxable income is under ~$120K and you don't have significant personal assets at risk. Consider switching to Pty Ltd once you're earning $150K+ or you want asset protection. The sweet spot for most plumbers to restructure is when net profit consistently exceeds $130,000/year.
The Two Most Common Structures for Plumbers
Sole Trader: You and the business are the same legal entity. Simplest to set up, cheapest to run, but you're personally liable for everything. Pty Ltd (Company): A separate legal entity. More expensive to set up and maintain, but offers asset protection and potential tax advantages at higher incomes.
Sole Trader — Pros & Cons
Advantages: Free to set up (just an ABN), simple tax return, no ASIC fees, full control, access to the tax-free threshold ($18,200), losses offset against other income immediately.
Disadvantages: Unlimited personal liability (your house, car, savings are all at risk if sued), higher tax rate once income exceeds $120K, harder to sell the business.
Pty Ltd Company — Pros & Cons
Advantages: Limited liability (personal assets protected), flat 25% company tax rate, can retain profits at 25% instead of 37–45% personal rate, more credible to larger clients, easier to sell.
Disadvantages: Setup cost $800–$2,000, annual ASIC fee $310+, more complex tax ($1,500–$3,000/year accounting fees), director obligations, can't access tax-free threshold on company profits.
The Tax Comparison (Real Numbers)
| Net Profit | Sole Trader Tax | Pty Ltd Tax* | Saving |
|---|---|---|---|
| $80,000 | $16,467 | $17,800 | -$1,333 (worse) |
| $120,000 | $31,267 | $29,200 | +$2,067 |
| $150,000 | $42,367 | $35,500 | +$6,867 |
| $200,000 | $64,667 | $47,000 | +$17,667 |
*Pty Ltd figures assume all profit retained in company at 25%. In practice, you'll pay yourself a salary (taxed at personal rates) and retain the rest.
When Should You Switch?
- Under $100K profit: Stay sole trader. The admin costs eat up any tax savings.
- $100K–$130K profit: Grey zone. Consider a company if you have significant personal assets.
- Over $130K profit consistently: Switch to Pty Ltd. Tax savings and asset protection justify the extra admin.
- Employing staff: Consider a company regardless of income — limits personal exposure to employee claims.
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