Dividends or wages: how should you pay yourself from your company?

When you run your business through a company, the company's money belongs to the company, not to you. That surprises a lot of new business owners. To get money out properly, you generally need to pay yourself in one of three ways: wages, dividends or a loan that meets strict rules. Each is taxed differently, and the right mix can make a real difference to how much you keep.

Option 1: Paying yourself a wage

If you work in the business, the company can pay you a salary like any other employee.

• The company claims a deduction for your wage, which reduces its taxable profit.
• PAYG withholding applies, so tax comes out of each pay and is sent to the ATO.
• Super is generally payable. The super guarantee rate is 12%, and from 1 July 2026 Payday Super requires it to be paid with each pay run, not quarterly.
• Payroll tax can apply once total wages across your group pass your state's threshold, and your wage counts towards that total.

Wages are taxed at your personal marginal rates. For 2026–27, the resident rates are:

Plus the 2% Medicare levy for most people. Rates for Australian residents, 2026–27.

A regular wage has practical benefits too. It gives you steady income, builds your super, and payslips make it easier to borrow, for example for a home loan.

Option 2: Paying yourself dividends

Dividends are paid to shareholders out of the company's profit after company tax. Most small companies are "base rate entities" and pay 25% company tax; others pay 30%.

The key feature is franking credits. When the company pays a franked dividend, it passes on a credit for the tax it has already paid. You include the dividend plus the franking credit in your income, pay tax at your marginal rate, and get the credit back against that tax.

For example, from a company paying 25% tax, a $75 fully franked dividend comes with a $25 franking credit, so you're taxed on $100:

• If your marginal rate is 30% (plus 2% Medicare levy), the tax is $32, less the $25 credit, so you pay a $7 top-up.
• If your marginal rate is 45% (plus 2% Medicare levy), you pay a $22 top-up.
• If your income is below the tax-free threshold, excess franking credits can be refunded.

Dividends don't attract super or payroll tax, and they give you flexibility on timing. But they can only be paid from profits, they don't build your super, and they need to be properly declared and documented, with a distribution statement for each shareholder.

Option 3: Taking money as a loan (and the Division 7A trap)

Some owners simply transfer money from the company account when they need it. If that money isn't recorded as wages or a dividend, it's usually treated as a loan, and Division 7A applies. Unless the loan is repaid, or put under a complying loan agreement with minimum yearly repayments and interest at the ATO's benchmark rate before the company's tax return is due, it can be treated as an unfranked dividend. That means tax with no credit for the company tax already paid. It's one of the most common and costly mistakes we see.

So which is better?

There's no single answer, but a few patterns come up often:

• A reasonable wage plus dividends works well for many owners who work in the business. The wage covers living costs and builds super, and dividends distribute surplus profit.
• Your total income matters. If your marginal rate is above the company rate, leaving profit in the company and paying dividends later, for example in a lower-income year, can help.
• Who owns the shares matters. If a family trust or other family members hold shares, dividends may be spread more effectively.
• Consultants and contractors need to check the personal services income rules, which can change how income earned through a company is taxed.

The best time to decide is before 30 June, when there's still time to plan wages, super and dividends for the year. We can model the options for your situation and set up the paperwork properly. See our tax services or book a free consultation.