Running a company is like being the lead guitarist of a band - you're the one doing a lot of the heavy lifting, so it only makes sense that you get paid properly. But here's the twist: paying yourself when running a company isn't as simple as just taking cash out of the till. Get it wrong, and the Australian Taxation Office (ATO) will be waiting in the wings with a very unwelcome encore.
Whether you're a creative professional, a tradie, a consultant, or a small business operator based in Penrith or anywhere across Sydney, understanding the process of paying yourself when running a company is one of the most important - and most frequently misunderstood - areas of business finance. This guide breaks it all down without the jargon, so you can keep the music playing without missing a beat.
As a company director in Australia, you're operating in a unique two-role framework - you're simultaneously an employee of your company and a shareholder who owns it. That distinction matters enormously, because it directly determines how you can legally extract funds from the business.
There are three primary, legitimate methods for paying yourself when running a company:
| Payment Method | Tax Deductible for Company? | Super Required? | PAYG Withholding? |
|---|---|---|---|
| director salary | Yes | Yes (12% SG) | Yes |
| Dividends | No | No | No |
| Director's Fees | Yes | Yes (generally) | Yes |
Each of these methods carries distinct tax consequences, compliance obligations, and strategic advantages. Choosing the right mix - or the right combination - depends on your personal circumstances, income level, and business profitability. This is where professional advice from a qualified chartered accountant becomes genuinely valuable.
A director salary is the most straightforward method of paying yourself when running a company. Essentially, your company employs you, processes your salary through payroll, and you receive regular income just like any other employee.
Your company must register for Pay As You Go (PAYG) withholding, deduct the correct amount of tax from your salary, and report those payments to the ATO in real time via Single Touch Payroll (STP)-compliant software such as Xero or MYOB. No more end-of-year Group Certificates - instead, the ATO receives your payroll data each pay cycle, and you access your income statement through myGov.
This is where many directors trip up. If you're paying yourself a salary, your company is legally required to make Superannuation Guarantee (SG) contributions on your behalf. From 1 July 2025, the SG rate is 12% of your ordinary time earnings. Based on the maximum contribution base of $62,500 per quarter for 2025–26, no SG is required on earnings that exceed this threshold.
Miss a quarterly super payment - due 28 October, 28 January, 28 April, and 28 July - and your company faces the Super Guarantee Charge (SGC). Unlike the regular SG contribution, the SGC is not tax-deductible, and directors can be held personally liable through Director Penalty Notices (DPNs). That's not a solo you want to play.
One significant advantage of a director salary: it's a tax-deductible expense for your company. This reduces the company's taxable profit before the corporate tax rate of 25% (for small business entities) applies, meaning more of your hard-earned revenue flows in the right direction.
Dividends are distributions of your company's after-tax profits to shareholders. If you hold shares in your own company - which most owner-directors do - you can receive dividends in addition to (or instead of) a salary. Critically, dividends carry no superannuation obligation and require no PAYG withholding.
Australia operates a dividend imputation system specifically designed to prevent double taxation, and it's one of the most shareholder-friendly features of the Australian tax system.
When your company pays corporate tax on its profits, it accumulates "franking credits" that can be attached to dividend payments. These credits represent the tax already paid at the corporate level.
Here's a practical example using the 25% corporate tax rate:
If the company distributes a $700 fully franked dividend, it attaches $233.33 in franking credits (calculated as $700 ÷ 0.75 × 0.25). The shareholder's grossed-up assessable income becomes $933.33, against which the $233.33 franking credit is applied as a tax offset.
If your personal marginal tax rate is lower than 25%, you may actually receive a refund of excess franking credits. If your rate is higher, you'll pay top-up tax on the difference. Understanding which scenario applies to you is crucial for effective tax planning.
Dividends cannot simply be transferred from the company account to your personal account. The company must:
Division 7A is arguably the most misunderstood - and most dangerous - trap in the process of paying yourself when running a company. It's a provision in the Income Tax Assessment Act 1936 that governs what happens when you take money from your company without formally recording it as a salary, dividend, or director's fee.
The rule is simple: any money taken informally is treated by the ATO as a loan.
If that loan doesn't comply with specific legal requirements, it becomes a deemed unfranked dividend - fully taxable at your marginal rate, with no franking credits to offset it. That's potentially a very expensive surprise come tax time.
For a loan to avoid the deemed dividend treatment, it must satisfy all three of the following conditions:
A formal, signed written agreement must be in place before the company's tax return lodgement date. It must identify both parties and specify the loan amount, date, interest rate, and repayment terms.
Interest must be charged at or above the Division 7A benchmark interest rate (updated annually by the ATO). For 2023–24, this rate was 8.27%.
Minimum yearly repayments (MYR) must be made by 30 June each year. Any shortfall is treated as a deemed dividend. And if you're thinking about withdrawing funds, repaying them just before 30 June, and repeating the cycle - the ATO has seen that song before, and it doesn't fly.
The ATO expects director salaries to reflect a genuine market rate - that is, what you would pay an external person to perform the same role. Setting a salary that's artificially high or suspiciously low can attract ATO scrutiny, with potential recharacterisation of payments as unfranked dividends.
There's an important tax efficiency threshold worth understanding. At approximately $130,000 in annual income, an individual's marginal tax rate (39%) plus the Medicare levy (2%) reaches 41% - significantly higher than the small business corporate tax rate of 25%. Every dollar of salary paid above this point is taxed more heavily in your personal hands than it would be if left within the company.
This crossover is one of the reasons why many company directors adopt a combined salary and dividend strategy - drawing a salary that covers living expenses and sits below this threshold, then distributing remaining profits as fully franked dividends after year-end accounts are finalised.
For creative professionals with variable income - where some years are a headliner and others are a support act - cash flow forecasting and structuring your remuneration around these thresholds becomes even more important.
Compliance isn't the most exciting part of running a business, but getting it right is what separates the sustainable operations from the ones that hit a bum note with the ATO.
If your total Australian wages - including director salaries, director's fees, superannuation contributions, and fringe benefits - exceed the NSW threshold (approximately $1.2 million annually), your company has payroll tax obligations with Revenue NSW. Director wages must be declared in the correct fields of your payroll tax return. Errors attract default assessments, interest charges, and penalties.
The ATO requires business owners to maintain comprehensive financial records. For most transactions, the minimum retention period is 5 years. Company records and employee records must be kept for a minimum of 7 years. Board minutes, constitutional documents, and formal resolutions should be retained indefinitely.
Records must include payroll documentation, PAYG withholding records, superannuation contribution evidence, board minutes approving dividends and fees, franking account records, Division 7A loan agreements, and all income and expense transactions. Keeping personal and business finances strictly separated is not just good practice - it's essential for audit trail integrity and tax compliance.
If your company provides you with benefits beyond salary - such as private use of a company vehicle, subsidised housing, or payment of personal expenses - Fringe Benefits Tax (FBT) may apply. The current FBT rate for 2024–25 is 47% on the taxable value of benefits. It's an area that catches plenty of directors off-guard, particularly when company assets are used for both business and personal purposes.
Paying yourself when running a company isn't a one-size-fits-all arrangement. The most tax-effective strategy for most company directors typically combines a market-rate salary (processed through payroll, with SG contributions) alongside fully franked dividends distributed after the financial year accounts are finalised.
This approach delivers:
For creative professionals with irregular income patterns - where cash flow can swing dramatically between touring and off-season periods - maintaining a cash reserve equivalent to 60–90 days of operating expenses and setting aside 25–30% of withdrawals for tax obligations provides essential financial stability.
Getting this balance right requires a clear understanding of your personal marginal tax rate, the company's profitability, your superannuation position, and the interplay between corporate and personal tax obligations. It's the kind of financial arrangement that genuinely benefits from the input of a qualified chartered accountant who understands both the technical requirements and your specific circumstances.
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