How to Pay Yourself When You Own a Company: Salary vs Dividends

If you own a company, you’ve probably had that moment when you look at your company's bank account and think, “Technically that’s mine...”. 

But as much as it feels like that's your money (and you did work hard for it), the rule says you can’t just take it out and spend it personally without jumping through a few hoops. The ATO draws a clear line between you and your company, and what's yours and your company's money, even if you’re the one earning all of it.

If you use that money without proper recording, then the default classification is usually director's or shareholder's loan, and it can lead to compliance issues with the ATO and potential tax complications. That’s why it’s important to take money out of your business the proper way.

As the owner, you have something most employees don’t: flexibility in how you pay yourself. Instead of just receiving a fixed salary like regular workers, you have two main options to take money out of your company: salary or dividends, or combination of both, and each option has different tax and financial implications.

Option 1: Paying Yourself a Salary

This is the traditional route. You treat yourself like an employee and draw a regular salary from your business.

With this option:

• The company pays you wages,

• Your wages are taxed according to Individual's marginal tax brackets,

• The business must pay superannuation on top of your wages,

• Your salary and super act deductions to the company’s taxable profit.

  
  

Pros:

• Regular, consistent income,

• Builds up super for retirement,

• Helps if you're applying for loans or credit.

  
  

Cons:

• More bookkeeping work if you're the only employee (doing payroll, managing PAYG withholding and super),

• Company needs steady cash flow to make regular wages payments.

Option 2: Taking Dividends

Once your company has made a profit and paid its tax (typically 25%), it can distribute its after-tax profit to you as dividends. These often come with franking credits, which represent the company tax already paid, so you don’t get taxed twice on the same money.

Pros:

• No superannuation obligations,

• Simpler transactions (no payroll if you're the only employee).

  
  

Cons:

• Dividends can only be paid from company profits,

• No super to you unless you contribute voluntarily,

• Less consistent, hence may not appear as stable to potential lenders.

  
  

Option 3: A Mix of Both

Many business owners choose a blend of both salary and dividends.

For example, taking a moderate salary allows you to:

• Keep your personal tax rate low,

• Contribute to super,

• Reduce the company’s taxable income.

  
  

Then, you can take the rest as dividends, using franking credits to reduce your personal tax amount on that portion.

This may result in:

• More cash in your pocket,

• Lower total tax paid (company + personal),

• Superannuation growing in your super account.

  
  

To Sum It Up

A quick reminder, everyone's situation is unique, but to summarise:

If you are a company owner, how you pay yourself can make a difference to your tax, cash flow, and long-term financial position.

Work with your accountant to design a plan based on:

• Your income needs,

• Retirement and super goals,

• Business cash flow,

• Tax position.

Good luck!

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