Changing from Sole Trader to Company: The Transition Checklist

We often get asked whether a new Xero file is required when changing from a Sole Trader to a Company. Our recommendation is a firm yes. A new ABN means a new entity and that means your company needs its own clean, fully separated Xero file. The data in your sole trader file doesn’t automatically carry over, nor does it belong to the new company.

As a sole trader, you and your business are legally the same entity. A company, on the other hand, is its own separate legal entity with its own ABN, obligations, and relationships. That means when you make the switch, you're not just updating a few records, you’re setting up an entirely new business structure. Your suppliers, employees, insurers, accounting software, and the ATO all need to interact with the new entity correctly.

Switching to a company means playing by a new set of rules, especially when it comes to how you pay yourself and treat business funds. If you're used to taking drawings as a sole trader, it's worth brushing up on the financial and tax concepts that now apply.

Not sure what changes?

Before diving into setup, make sure you understand the key accounting concepts that change. Read our companion blog post: Changing from Sole Trader to Company: New Concepts

It’s not hard once you know what to look for, but it’s easy to miss things if you’re only focused on the ABN swap. Here’s the checklist of things to consider to keep your transition compliant, smooth, and well-documented.

1. GST, ABN, and ATO Setup

  • Confirm your company ABN has been registered as part of your company setup (you can check via ABN Lookup)

  • Register the company for GST if applicable (this is not always done during company registration)

  • Register the company for PAYG withholding if you’ll be employing anyone (including yourself as a director)

  • Apply for your Director ID via ABRS.gov.au

  • Use the Relationship Authorisation Manager (RAM) to:

    • Link individual MyID (Government Digital ID) to your company ABN (You may need Identity Strength: Strong)

    • Enable access to the ATO Business Portal or Online Services for Business

2. Banking and Financial Accounts

  • Open new bank accounts in the company’s name, you can’t reuse your sole trader accounts

  • Set up online banking access and make sure authorised signatories are correct

  • Avoid using company accounts for personal spending. If it happens:

    • Record it correctly in Xero as a director loan or personal expense

  • If you’re closing the sole trader accounts:

    • Determine to what date you have to do bookkeeping and BAS

    • Finalise reconciliation

    • Export and archive statements for tax records

  • These new accounts will be connected to your new Xero file and should only contain company transactions

3. Xero File Setup

  • Create a brand new Xero file using the company’s ABN and legal name

  • Customise:

    • Chart of Accounts to reflect company structure eg. Retained Earnings, Director’s Loans not Owner Drawings.

    • Invoice branding, payment terms, and new banking details

    • GST settings for the new ABN

  • If transferring assets (e.g. vehicles, equipment) into the company, get tax agent advice on how to record them correctly

4. Payroll Setup and Director Payments

  • Decide how you’ll pay yourself – wages, dividends, or both
    (If using dividends, this must be done with advice from your tax agent)

  • If taking wages, register for:

  • Set up Xero Payroll in the new file:

    • New employee records (even if continuing from sole trader employment)

    • STP connection and default super fund

  • If you’re migrating part way through the financial year:

    • Plan whether you need to carry over YTD earnings and tax figures and leave balances

    • Be aware this affects payment summaries, super reporting, and ATO records

5. Third Party Integrations and Apps

  • Determine which systems can be updated with the new ABN and bank details, and which require setting up a new account under the company’s name. For example:

    • Stripe: Requires a new account for a different legal entity

    • PayPal: Generally requires a new business account with updated verification

    • Square: May allow updates if the ABN is changing but ownership stays the same, check their entity change policy

    • Hubdoc and Dext: Can typically be updated, but ensure billing and linked Xero file are reconnected

  • Update billing details and ABN across all platforms, including:

    • Stripe, PayPal, Square

    • Dext, Hubdoc

    • POS systems and eCommerce platforms (Shopify, WooCommerce, etc.)

  • Disconnect any old integrations from the sole trader Xero file if you're transitioning to a new file

  • Reconnect apps to the new Xero file, ensuring:

    • Payments and sales sync to the correct company bank accounts

    • Expense feeds and automated publishing reflect the new ABN

    • The connected file is correctly mapped for reconciliation and reporting

  • Check and update:

    • Invoice references (e.g. prefixing invoice numbers in Stripe or Square)

    • Email forwarding addresses and system notifications

    • Subscription billing contacts and company ownership details

6. Superannuation and WorkCover

  • Register the company as an employer with:

    • Your chosen super clearing house, such as:

      • ATO Small Business Super Clearing House (SBSCH)

      • Your industry or default fund

      • Xero Auto Super (via their clearing house partner)

    • Your state’s WorkCover insurance / workers compensation authority under the new ABN

  • Set up Superannuation in Xero:

    • Activate Xero Superannuation in the new file

    • Ensure each employee is assigned the correct super fund details, including the director if on payroll

  • If the director is receiving wages, they must be included in:

    • Superannuation contributions

    • WorkCover registration and reporting (depending on state-specific rules)

7. Insurance, Licensing, and Subscriptions

  • Notify your insurance providers of the structural change and:

    • Update or reissue policies under the new company name and ABN

    • Consider whether your existing public liability, professional indemnity or cyber cover is still appropriate

  • Update subscriptions, memberships, and licensing records to reflect the new entity:

    • Domain names and website hosting

    • Google Workspace or Microsoft 365

    • Professional associations or industry certifications

8. Suppliers and Clients

  • Notify suppliers that all future invoices must be addressed to the company, not your personal name or sole trader ABN

  • Provide updated:

    • Business name and ABN

    • New bank account details

    • Contact email or billing references if changed

  • Update your own invoice templates in Xero to reflect:

    • The company name and ABN

    • Correct remittance details

  • Communicate with your clients clearly that you're now trading under a registered company structure

    • This ensures they update your records correctly for ATO reporting (e.g. TPAR, subcontractor summaries)

  • Highly recommend communicating via multiple channels (email, invoice footer, a formal letter, and even a pinned notice on your invoice PDF) to ensure the update is received and not mistaken for a scam or phishing attempt.

9. Transition Timing and Handover Planning

  • Choose a transition date that minimises complexity, ideally aligned with:

    • A BAS quarter end

    • A payroll cycle boundary

    • A clean cutoff in customer or supplier activity

  • Finalise:

    • All sole trader BAS lodgements

    • Last payroll reports, super, and STP finalisation

    • Final bank reconciliations and reports for sole trader file

  • Once the old file is complete:

    • Lock the file to prevent accidental edits

    • Export reports and statements for your records or accountant

    • Consider downgrading the Xero subscription to save cost if you need to keep it going until accounts are finalised.

10. Document It All

  • Keep detailed records of:

    • Asset transfers between entities (especially if GST applies)

    • Director loan movements

    • Dividend resolutions or payroll commencement

  • Maintain copies of ASIC registration, ABN/GST confirmations, and ATO registrations

  • Use a secured folder (e.g. Google Drive or Dropbox) to keep transition documentation accessible and backed up

Wrapping Up

Switching from sole trader to company is a significant transition, and it’s easy to underestimate just how many systems, registrations, and workflows are affected. But with a clear plan and the right support, it doesn’t have to be overwhelming.

This checklist gives you a solid foundation to map out the key steps, but don’t forget, this change also comes with a shift in how money flows through your business.

If you haven’t already, read our companion article: Changing from Sole Trader to Company: New Concepts
It walks through the accounting mindset shift that goes hand-in-hand with these setup tasks.

If you’d prefer expert help making this transition clean and compliant, I offer structured Xero setups, transition planning consults, and ongoing mentoring to help you build strong financial systems.

Disclaimer

The information in this article is general in nature and provided for educational purposes only. It does not constitute personal financial, legal, or tax advice and should not be relied upon as such. Every business has unique circumstances, and we strongly recommend consulting with a registered tax agent, BAS agent, or legal advisor before making decisions about your company setup, payroll, or financial systems. While care is taken to ensure accuracy, laws and software functionality may change over time.

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Changing from Sole Trader to Company: New Concepts