How you pay yourself from your company matters more than most owners expect. Salary, dividends and super each attract different tax, different timing and different records. Get the mix right and you keep more of what the company earns. Get it wrong, particularly by taking money out as a loan, and the ATO can treat the withdrawal as an unfranked dividend taxed at your marginal rate. This guide explains the three legitimate routes, the trap in between, and how to choose a mix that fits your year.
The principle: the company’s money is not your money
A company is a separate legal entity. Its profits belong to the company until it pays them out to you in an approved way. The approved ways are salary and wages, director fees, dividends, and super contributions made on your behalf.
Anything else is a loan or a benefit, and Division 7A of the tax law exists to stop private companies leaving profits with shareholders tax free.
Option 1: Salary or director fees
Salary is a deductible expense for the company. You pay PAYG tax on it at your marginal rate, the company withholds and remits that tax, and the amount counts towards your super. Director fees work the same way.
The advantages are simplicity and super. Salary also gives you a consistent income record for lending. The disadvantage is that it is taxed at your full marginal rate, and the company gets a deduction at the company rate. For a base rate entity with turnover under $50 million, the company rate is 25%, so salary at a higher personal rate is not always efficient.
Salary also creates super obligations, including payday super timing. Do not set a salary without costing the super on top.
Option 2: Dividends
A dividend is a distribution of after tax profit. The company pays tax on the profit first, then declares a dividend from the after tax amount. If the dividend is franked, you receive franking credits that offset the tax on the dividend in your own return.
Dividends give you flexibility: the company decides how much and when, subject to having distributable profits and proper documentation. They do not attract super. They do not reduce company tax, because the tax has already been paid.
Timing matters. A dividend declared in June is taxed in that income year. A dividend declared in July belongs to the next year, which is often the point of the decision.
Option 3: Super contributions
The company can contribute to your super as an employer contribution, or you can contribute personally and claim a deduction where eligible. Either way, the contribution is taxed at 15% inside the fund rather than at your marginal rate, which is the main reason it is used in a remuneration mix.
There are caps, and contributions above the cap attract extra tax. The deduction rules for personal contributions require a valid notice of intent before you lodge. Our article on super contribution tax deductions covers the notice requirement and the timing.
The comparison
| Salary or director fees | Dividends | Super contributions | |
|---|---|---|---|
| Company deduction | Yes | No, paid from after tax profit | Yes, within the rules |
| Tax to you | Marginal rate, PAYG withheld | Marginal rate with franking credits | 15% in the fund, plus caps |
| Super obligation | Yes, including payday super | No | It is the contribution |
| Flexibility | Fixed and regular | Flexible, subject to profits and documentation | Capped, timing sensitive |
| Best used for | A steady personal income | Distributing profit after company tax | Long term wealth and tax efficiency |
The trap: loans and Division 7A
Taking money out of the company without salary, dividends or a complying loan is the most common expensive mistake we see. Division 7A can treat the amount as an unfranked deemed dividend, taxed at your marginal rate with no franking credits to offset it.
A complying loan needs a written agreement in place before the company’s lodgement day for that income year, a minimum yearly repayment made by 30 June each year, and interest at the ATO benchmark rate. Unsecured loans generally run for a maximum of seven years, secured loans for up to 25 years. The ATO’s Division 7A loans guidance sets out the conditions, and its calculator and decision tool works through the minimum repayment.
Two related traps: paying personal expenses from the company account, and using a trust distribution to a company that is never paid. Both can be treated as loans.
How to pay yourself from your company: choosing the mix
There is no universal split. The right mix depends on your personal marginal rate, the company’s profit, your cash needs, your super balance and your plans for the year. A practical process looks like this:
- Set a base salary that covers personal living costs and supports lending applications.
- Add super up to the concessional cap where cash flow allows, because it is taxed at 15% in the fund.
- Leave remaining profit in the company or distribute it as a franked dividend, depending on your personal rate and the company’s retained earnings needs.
- Document every decision with a resolution, and record any loan on the balance sheet with a complying agreement.
- Review before 30 June, not after, because most of the choices are timing decisions.
Records and timing
- Director and shareholder resolutions for dividends, dated and minute recorded
- PAYG withholding and single touch payroll for any salary
- A written Division 7A loan agreement where a loan exists, before the lodgement day
- Evidence of minimum yearly repayments, made by 30 June
- Notice of intent for any personal super contribution you intend to deduct
- Company financial records kept for seven years under the Corporations Act
If you are still deciding on structure
Paying yourself from a company only works if the company structure was the right choice. If you are still comparing structures, start with our guides to moving from sole trader to company and trust versus company versus sole trader.
Frequently asked questions
How should I pay myself from my company?
Most owners use a mix: a base salary that covers living costs and supports lending, super contributions within the cap, and franked dividends from remaining profit. The correct mix depends on your marginal rate and the company’s profit.
Is salary or dividends better?
Salary is deductible to the company and attracts super. Dividends are paid from after tax profit and carry franking credits. Neither is better in isolation. The efficient choice depends on your personal tax rate and how much profit the company needs to retain.
Can I just take money out of my company?
Not without a record. A withdrawal that is not salary, a dividend or a complying loan can be treated as a Division 7A deemed dividend, taxed at your marginal rate with no franking credits.
What is a Division 7A loan?
A loan from a private company to a shareholder or their associate that must meet specific conditions, including a written agreement, minimum yearly repayments and the benchmark interest rate. If it does not, the shortfall can be treated as a dividend.
How much can I contribute to super through my company?
Contributions are subject to the concessional contributions cap, which is indexed. Amounts above the cap attract additional tax. Confirm the current cap for the income year before you contribute.
Do I have to pay myself super?
If you are an employee of the company, including a director who receives salary, super guarantee obligations apply. Payday super now requires contributions within seven business days of each payday.
Can my company pay my personal expenses?
It can, but the payment is usually treated as a loan or a fringe benefit. Either way it needs to be recorded and taxed correctly. Unrecorded personal spending is the most common source of Division 7A problems.
When should I decide the mix?
Before 30 June. Dividends, super contributions and loan repayments all have timing rules, and most of the flexibility disappears once the year has closed.
Set the mix before the year closes
The cheapest tax outcome is usually the one planned in March, not the one discovered in August. Bring your profit estimate and your personal cash needs, and we will model the salary, super and dividend combination against your actual position.
Our business accounting and business advisory teams handle the modelling and the documentation. CPA Australia’s small business resources are a useful independent reference on owner remuneration.
Want the mix modelled for your year?
Send your profit estimate and your personal cash needs. We will show the salary, super and dividend combinations and the tax effect of each.
Or call the office
973 Pacific Hwy, Pymble NSW 2073. Monday to Friday, 9am to 5pm.
