How to Pay Yourself as a Business Owner in Australia

Your business turns over good money, the team gets paid on time, the ATO gets paid on time, and somehow you’re the one who gets whatever is left. Sound familiar? Knowing how to pay yourself as a business owner is one of the biggest levers you have for cutting tax and building wealth, yet most owners never get a clear answer from their accountant.

This guide explains the main ways owners take money out of a business in Australia, what each one means for tax, and how to build a pay plan that actually works.

Why how you pay yourself matters

Two owners can take exactly the same amount out of their businesses and pay very different amounts of tax. In most cases, the difference comes down to structure, timing and the mix of methods used. Get it right and you keep more, smooth out your cash flow and avoid nasty surprises. On the other hand, get it wrong and you can end up with a large tax bill, a Division 7A problem or a business that never seems to have spare cash.

How to pay yourself as a business owner: it starts with your structure

The options open to you depend on how your business is set up.

Sole traders and partnerships

If you’re a sole trader, you and the business are the same taxpayer. Money you take out is called drawings. Drawings aren’t a tax deduction and aren’t taxed when you take them. Instead, you pay tax on the business’s whole profit at your personal tax rates, whether you withdraw it or leave it in the account. Partners work the same way on their share of partnership profit.

However, once profits climb, everything lands on your personal return at your marginal rate. For many owners turning over $300k or more, that’s a sign the structure needs a review. Our guide to sole trader vs company tax rates walks through the comparison.

Companies

A company is a separate taxpayer, so you need a deliberate way to move money from the company to you. The main options are:

• Salary or wages. Paid through payroll like any employee. The company claims a deduction, withholds PAYG tax and pays superannuation guarantee on top.
• Director fees. Similar to salary for tax purposes and also deductible to the company.
• Dividends. Paid from company profits after company tax. Dividends can carry franking credits for the tax the company has already paid, which reduce the tax you pay personally. Our dividends guide covers the basics.
• Loans. Taking money as a loan from your company triggers Division 7A rules. Without a compliant loan agreement and minimum yearly repayments, the ATO can treat it as an unfranked dividend.

Trusts

A trading or family trust distributes its income to beneficiaries, who then pay tax on their share. Trustees generally need to decide distributions by 30 June each year, and the ATO is paying close attention to arrangements where income is distributed to one person but the money is actually enjoyed by someone else. As a result, a trust can be very effective, but it needs proper paperwork every single year.

Should you pay yourself salary, dividends or both?

For most company owners, the answer is a mix. For example, a regular salary gives you predictable income, builds your super and supports things like home loan applications. In addition, dividends let you draw on profits at a time and amount that suits the tax position of both the company and you.

The right balance depends on your total income, your partner’s income, the company’s profit, whether there’s a family trust in the picture and what you want to achieve with super. There’s no one answer, which is exactly why it should be worked out each year rather than set once and forgotten.

Pay yourself into super too

If you pay yourself a salary through a company, superannuation guarantee applies just like it does for your staff. What’s more, extra concessional contributions to super can be one of the most tax-effective ways to move money out of the business, within the annual caps. Sole traders can often claim a deduction for personal super contributions too. Super should be part of your pay plan, not an afterthought.

Common mistakes when you pay yourself

• Treating the business account like a personal wallet. Ad hoc transfers from a company account create loans you didn’t mean to make, and Division 7A headaches later.
• Paying yourself whatever is left. If you only take what’s left at the end of the month, you’ll always come last. Decide your pay first.
• No tax set aside. Dividends and trust distributions often have tax due later. Without a separate tax account, that bill lands with no cash to pay it. Our post on avoiding surprise tax bills explains how to stay ahead.
• Setting it once and never reviewing. The best mix changes as profits grow, tax rates change and your family situation changes.

How to pay yourself as a business owner: a simple plan

1. Work out what you need. Start with your personal and family costs, then add savings and investment goals.
2. Check the business can afford it. A cash flow forecast shows whether your target pay is sustainable.
3. Choose the mix. Decide how much comes as salary, dividends, distributions and super based on your structure.
4. Automate it. Pay yourself on a set schedule, and move tax and profit into separate accounts as cash comes in. That’s the idea behind The Jar Principle.
5. Review before 30 June. Meet with your accountant before year end to adjust dividends, distributions and super while there’s still time to act.

Where a proactive accountant makes the difference

A once-a-year accountant tells you what you paid yourself after the year is over. A proactive accountant helps you plan it before the year starts and checks in along the way. In other words, that’s the difference between finding out about a tax bill and planning around one. If you’re unsure whether your current setup is costing you, read our guide to paying less tax.

Next step

Want a pay plan built around your business and your goals? Book a Business X-Ray and we’ll show you the most tax-effective way to pay yourself, and how much more you could be keeping.

Frequently asked questions

Can I just transfer money from my company account to my personal account?

You can, but it’s usually treated as a loan from the company. Unless it’s repaid or put under a compliant Division 7A loan agreement, it can be taxed as an unfranked dividend.

Are drawings tax deductible for sole traders?

No. Sole traders pay tax on the business’s profit, not on what they withdraw.

Is it better to pay yourself a salary or dividends?

Usually a mix of both. The right split depends on your income, your family’s income and the company’s profit, so it’s worth reviewing each year.