Sole Trader or Company for Ecommerce? (NZ & AU)

Most articles on this list the differences and leave you to decide. Here's the list, and then an actual opinion about when to switch.

What's the practical difference?

Sole trader. You are the business. Its profit is your income, taxed at your personal rates. Cheap and immediate to start. You're personally liable for its debts.

Company. A separate legal entity that you own shares in. It pays its own tax, files its own returns, and — importantly — its debts are generally its own, not yours.

Tax: which one costs less?

Less clear-cut than people assume, because it depends entirely on how much you earn.

New Zealand. Companies pay a flat 28%. Sole traders pay individual rates, which start lower and step up. At modest profits a sole trader often pays less; the company rate becomes attractive once your profit pushes you into the higher personal brackets.

Australia. Base rate companies — turnover under $50m, with limits on passive income — pay 25%; other companies 30%. Sole traders pay individual rates with the tax-free threshold at the bottom.

The nuance that matters: in a company, profit you leave in the business is taxed at the company rate. Profit you take out is taxed again in your hands (with imputation or franking credits for what's already been paid). So a company is most advantageous when you're reinvesting rather than extracting everything — which describes most growing ecommerce stores.

Liability: the real argument

This is the one that should drive the decision, and it's usually discussed last.

As a sole trader, if the business owes money it can't pay, that's your money. Your savings, potentially your house.

For ecommerce specifically, the exposures worth thinking about:

Stock commitments. A large order that doesn't sell is a personal debt
Product liability. If something you sold causes harm
Supplier disputes on significant contracts
Personal guarantees — note that lenders often require these from company directors anyway, which narrows the protection in practice

If you're selling anything consumed, applied to skin, given to children, or electrical, the liability argument gets significantly stronger.

Cost and admin

Sole trader: minimal. Register for an IRD number (NZ) or ABN (AU) and you're trading. One tax return.

Company: incorporation fees, annual return fees, financial statements, separate returns, and generally a larger accountancy bill — commonly a few hundred to a couple of thousand a year more, depending on complexity.

That gap is real but it's smaller than most people fear, and it shrinks as a proportion of turnover as you grow.

Credibility

Modest but real. Some suppliers, wholesalers and stockists prefer dealing with a company. If you want to sell into retail or land distribution deals, a company is often expected. If you sell direct to consumers, customers neither know nor care.

So when should I switch?

The honest answer is that it's a judgement call with your accountant. But the common triggers:

Switch when profit gets meaningful. Once you're consistently making enough that the company tax rate beats your personal rate on the reinvested portion, the maths starts favouring a company. In New Zealand that conversation often starts somewhere around the point where profits push into the higher personal brackets.

Switch when liability gets real. Large stock orders, physical products with any safety dimension, employees, significant supplier contracts. This trigger should override the tax one — protection is worth paying for.

Switch when you're reinvesting heavily. If you're leaving profit in the business to fund growth, a company lets it be taxed once at the company rate rather than at your marginal rate.

Don't switch just because it sounds more professional. That's the most common bad reason, and it buys you admin you don't need yet.

Can I change later?

Yes, and plenty of stores do — starting as a sole trader and incorporating once things are established is a completely normal path.

It isn't free. There's incorporation, transferring assets, new bank accounts, re-registering for GST under the new entity, updating suppliers and payment processors. Worth planning rather than doing mid-peak-season.

Whichever you pick, know your numbers

Both structures depend on knowing your actual profit — it determines your tax, what you can safely draw, and whether the switch even makes sense. If you can't answer "what did I make last month, after everything," the structure question can't be answered properly either.

That's what Rev Room does for NZ and Australian Shopify stores — profit after COGS, ads, shipping and fees, with GST and tax set-asides — though the point stands whatever you use to track it.

The short answer

Sole trader: cheaper, simpler, personally liable
Company: costs more to run, protects personal assets, better when reinvesting profit
Liability should usually drive the decision, not tax
You can switch later — many do — but plan it rather than rushing it
This is a genuine accountant conversation; the cost of getting advice is far below the cost of getting it wrong

General information only, current as at 20 August 2026. Tax rates and thresholds change and the right structure depends entirely on your circumstances. Check ird.govt.nz or ato.gov.au and talk to your accountant.