How To Pay Yourself As A Company Director in Australia

For many directors, the simplest way to pay yourself small business owners often choose is through a salary. In this arrangement, the company formally employs you as a director or employee and pays you a set wage. From the ATO’s perspective, you’re treated no differently than any other staff member on the books.

This requires a proper employment or director’s service agreement that spells out your role, responsibilities, and agreed remuneration. Without it, payments risk being challenged as unauthorised drawings.

I often recommend this approach for new businesses because it gives the director a predictable income stream and ticks the boxes for superannuation and PAYG. One client of mine, running a plumbing company in Melbourne, moved to a set $120,000 annual salary once the business became profitable. It gave him peace of mind for mortgage applications and household budgeting — something that dividends alone couldn’t guarantee.

Employer Obligations And Compliance

If you pay yourself via salary, you also take on the same obligations as any other employer in Australia:

• PAYG Withholding – The company must withhold income tax from your salary and pay it to the ATO on your behalf. For example, if you pay yourself $10,000 per month, part of that will be withheld for tax, leaving you with the net amount.
• Superannuation Guarantee (SG) – Compulsory super applies to directors, just like employees. For 2024–25, the SG rate is 11.5%, rising to 12% from 1 July 2025. So, if you draw a $120,000 salary, the company must contribute an extra $13,800 into your super fund this year.
• WorkCover Insurance – Depending on your state, you may or may not need to pay WorkCover on director salaries. For instance, in Queensland, director wages are excluded from premium calculations, while in Victoria they’re included.
• Single Touch Payroll (STP) – All salary payments must be reported electronically to the ATO at the time of payment. Most modern accounting software handles this automatically, but it’s a compliance box you can’t ignore.
• Payroll Tax – In some states, if your total wages bill (including your director’s salary) exceeds the threshold (e.g. $700,000 in Victoria for 2024–25), you’ll also need to register and pay state payroll tax.

Salary: Benefits And Drawbacks

Like most things in tax planning, there are two sides to the coin:

Pros

• Regular income provides stability for personal budgeting and borrowing capacity.
• Super contributions build your retirement nest egg.
• PAYG withholding means you’re paying tax progressively, reducing end-of-year surprises.
• The company can claim your salary and super as a deductible expense, reducing its taxable profit.

Cons

• Increased admin — STP, super payments, and possibly payroll tax reporting.
• Additional on-costs such as superannuation, insurance premiums, and WorkCover.
• Less flexibility compared to dividends when it comes to timing and tax planning.

Checklist for Paying Yourself a Salary Legally

• Put a written director service agreement in place.
• Register for PAYG withholding with the ATO.
• Set up Single Touch Payroll reporting.
• Ensure superannuation contributions are paid on time (quarterly).
• Check state-specific WorkCover rules.
• Monitor payroll tax thresholds in your state or territory.

Receiving Director’s Fees

Authorisation And Governance Rules

Unlike a salary, director’s fees are not automatically payable. The right to receive them must be built into your company’s constitution or approved by a shareholder resolution.

Typically, shareholders vote on a maximum “pool” of fees that can be paid to the board, and then the directors decide how those funds are split among themselves. This ensures transparency and keeps payments above board (no pun intended).

For example, I worked with a family-owned construction company in Victoria where the shareholders approved a $200,000 director’s fee pool. The board agreed that $80,000 would go to the managing director, $70,000 to the finance director, and the remaining $50,000 to the operations director. This formal process meant no disputes when tax time rolled around.

Superannuation And Tax Treatment

From a compliance perspective, directors’ fees are treated like ordinary income. That means:

• Superannuation Guarantee (SG) – Director’s fees are generally classified as ordinary time earnings, so super must be paid at the current rate of 11.5% (rising to 12% from 1 July 2025). If you receive $50,000 in director’s fees this financial year, the company must also contribute $5,750 into your super fund.
• PAYG Withholding – The company is required to withhold tax from directors’ fees and remit it to the ATO. If your marginal tax rate is higher than the withheld amount, you’ll pay the balance when you lodge your individual return.
• Deductibility for the Company – Director’s fees are a legitimate business expense and can be claimed as a deduction, reducing the company’s taxable income.

Benefits And Drawbacks Of Directors’ Fees

Pros

• Flexible way to remunerate directors without creating employment contracts.
• Deductible expense for the company.
• Can be paid in addition to a salary or dividends, offering variety in structuring remuneration.

Cons

• Still attracts superannuation and PAYG obligations.
• Requires shareholder approval or constitutional authority, which adds another layer of paperwork.
• Unlike dividends, directors’ fees don’t come with franking credits to offset personal tax.

Example Scenario
Imagine you’re the sole director of a consulting company. You don’t want a regular wage but still want to compensate yourself for board-level duties. You authorise $60,000 in director’s fees through a shareholder resolution. The company claims this as a deduction, pays $6,900 into your superannuation, and withholds PAYG tax each time fees are paid. At year’s end, you declare the income on your personal tax return.

Taking Dividends As A Shareholder

How Dividends Work In Australia

If you’re both a director and a shareholder, you can receive money from the company through dividends. Unlike salaries or directors’ fees, dividends are paid from after-tax profits. That means the company first pays its corporate tax (usually 25% for base rate entities or 30% for others) before profits can be distributed.

Importantly, dividends are not deductible for the company. They represent a distribution of retained profits, not an expense.

Let’s say your company earns $200,000 profit before tax. At a 25% company tax rate, $50,000 is paid to the ATO, leaving $150,000 in after-tax profits. If you hold 100% of the shares, you could declare a dividend for that full $150,000 — provided the company has the cash flow to support it.

Tax Treatment And Franking Credits

Dividends are taxable income for the shareholder, but Australia’s imputation system helps prevent double taxation. Here’s how:

• Dividends may carry franking credits, which reflect the company tax already paid.
• These credits can offset your personal income tax liability.
• If your personal marginal rate is lower than the company’s tax rate, the ATO may refund the difference.

Example

• The company pays you a fully franked dividend of $50,000.
• The dividend statement shows $16,667 in franking credits (assuming a 25% tax rate).
• You declare $66,667 as assessable income on your personal return ($50,000 dividend + $16,667 credit).
• If your marginal rate is 32.5%, you’ll owe extra tax. If it’s 19%, you may get a refund of unused credits.

Rules And Documentation Requirements

The ATO expects dividends to be properly documented and distributed fairly:

• Board Resolution – Directors must pass a formal resolution to declare a dividend.
• Dividend Statements – Must be issued to shareholders showing the amount, franking percentage, and any franking credits attached.
• Proportional Payments – Dividends must generally be paid in proportion to shareholdings. For example, if you own 70% of the company and another shareholder owns 30%, dividends must be split accordingly, unless you’ve issued different share classes that allow for unequal rights.

Dividends: Advantages And Disadvantages

Pros

• Can be highly tax-efficient due to franking credits.
• No obligation to pay superannuation or workers’ compensation.
• Useful for strategic tax planning, such as income splitting through discretionary trusts that hold shares.

Cons

• Only payable if the company has after-tax profits.
• More complex paperwork compared to a simple wage.
• No compulsory super contributions — so unless you top up personally, retirement savings may lag behind.

Comparison: Salary vs Dividend (2024–25)

Aspect	Salary (AUD)	Dividend (AUD)
Tax deductibility	Deductible for the company	Not deductible
Superannuation	11.5% compulsory	Not required
Reporting	STP required	Dividend statement required
Timing flexibility	Regular, ongoing	Declared when profits allow
Tax efficiency	Marginal rate only	Marginal rate offset by franking credits

Choosing The Best Way To Pay Yourself

Hybrid Strategies In Practice

There’s no single “best” option that works for every director. The ideal mix depends on your company’s profits, your personal circumstances, and long-term goals. In practice, many directors use a hybrid strategy that blends the stability of a salary with the tax efficiency of dividends.

For example, one of my clients in Melbourne runs a growing digital agency. She pays herself a salary of $100,000 per year, which covers her living expenses, ensures regular superannuation contributions, and keeps her tax withheld consistently through PAYG. At year’s end, if the company has after-tax profits, she declares dividends — usually around $40,000–$60,000 — which take advantage of franking credits.

This balance means she has a predictable cash flow to cover the mortgage and day-to-day bills, while still benefiting from the lower effective tax rates available through dividends.

The Role Of Good Records And Professional Advice

Regardless of the approach you choose, two things matter above all: documentation and compliance. The ATO places heavy emphasis on record-keeping, and sloppy administration is one of the most common red flags in an audit.

What directors should keep on file:

• Board resolutions approving salaries, fees, or dividends.
• STP reports for salaries and directors’ fees.
• Superannuation payment records (due quarterly).
• Loan agreements where Division 7A applies.
• Dividend statements for every distribution.

The reality is, the rules are strict and the penalties for missteps can be steep. I’ve seen directors forced to pay tax on “deemed dividends” simply because they didn’t formalise a loan correctly. That’s why I always recommend directors work closely with their accountant or tax adviser before pulling money from the company.

A salary provides stability and ensures compliance with super and PAYG, while dividends can boost tax efficiency when profits allow. Director’s fees are a useful alternative for governance roles. Ultimately, the best strategy often combines more than one method, underpinned by careful planning and accurate reporting. Think of it less as a one-off choice and more as an ongoing financial plan.

Paying yourself as a company director in Australia isn’t as simple as moving money from one account to another. With the ATO watching closely, it pays to get it right. Whether you draw a salary, take director’s fees, issue dividends, or set up a Division 7A loan, each option comes with its own tax treatment, reporting requirements, and compliance obligations.

From what I’ve seen advising business owners across Melbourne, the most effective strategy is usually a blend of salary and dividends. This keeps you on the right side of the law, ensures your superannuation is funded, and allows for smart tax planning when profits permit. But the best plan for you will always depend on your company’s structure, profitability, and personal financial goals.

One golden rule never changes: keep your records watertight and seek professional advice before moving company money into your own pocket. A little planning goes a long way in avoiding nasty surprises from the ATO.