5 Ways To Pay Yourself From Your Company
Owning a company comes with its own set of rules to get money out, once it starts making a profit. It is essential to have a plan on how to pay yourself to avoid the Problem with leaving profits in your company. Not having a plan can also lead to surprise tax bills (and not in a good way). Here are five ways to pay yourself from your company.
1. Repay director/shareholder loan
The chances are that when you started your company that you lent funds or paid expenses on behalf of it, in your capacity as either the director or shareholder. These funds can be repaid at any time without any tax consequences for either yourself or the company. Just be sure to keep track of the amount owed and the repayments.
2. As an employee
Paying yourself a salary or wage is the easiest way to take money from your company and not get a tax surprise. PAYG withholding will be paid monthly or quarterly by the company to the ATO to help manage cashflow. You will need to report payroll details to the ATO via single touch payroll (STP) and pay super quarterly. These payments are tax deductible to the company.
3. Bonus/Director's Fee
If cashflow is irregular or cash starts to accumulate in the company you might decide to pay yourself a bonus or director's fee. Usually paid in addition to your salary/wage they're reported through STP. Director's fees attract PAYG withholding and super. However only performance bonuses, Christmas bonuses and bonuses in respect of ordinary hours of work attract super. Super is not paid on bonuses in respect of overtime.
4. Dividends
Dividends are paid to shareholders from the accumulated profits of the company. Dividends are not tax deductible to the company. However, it may be franked if tax has been paid on company profits. The dividend is included in the shareholders tax return. If the dividend is franked, depending upon the tax/marginal tax rate of the shareholder, this may result in either a refund or further tax payable. You might like to read our blog FAQ: Dividend, bonus or directors fee, which is better? to better understand how dividend franking and taxing works.
5. Loan from the company
Withdrawing funds from the company bank account or paying personal expenses with company money is almost guaranteed to result in a surprise tax bill. At the time the company's tax return is lodged, the loan is to be either repaid or a complying loan agreement put in place. If not the ATO will deem an unfranked dividend. Having the required cashflow to pay the tax on amounts borrowed can be problematic and caution is advised if borrowing money. Our blog Case study: Making a loan from your company work for you shows how loans can be used, in a positive way, when you have a plan in place.
We have prepared an infographic, 5 ways to pay yourself from your company, for your easy reference. You can download a copy here.
If you would like specific advice tailored to your business and circumstances, Accounting Heart offers affordable service packages where you can work with Sonia one-on-one to help you get your business where you want it to be. Book your FREE Discovery Call to find out more.
Disclaimer: This is general information only and is not advice of any sort. No warranty or representation is provided by Accounting Heart Pty Ltd as to the accuracy, currency or completeness of the information contained in this blog. Readers of this blog should not act or refrain from acting in reliance upon any information contained herein and must always obtain appropriate taxation and / or other advice as may be appropriate having regard to their particular circumstances.