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The three routes compared
| Salary or directors' fees | Franked dividends | Informal drawings | |
|---|---|---|---|
| Company side | Deductible, reducing the 25-30% tax. PAYG withheld each pay and super guarantee payable | Paid from after-tax profits, not deductible, and debits the franking account | Nothing withheld, nothing documented |
| Your side | Ordinary income at marginal rates, with withholding smoothing it | Grossed-up dividend taxed at your rate less the franking credit | Deemed unfranked dividend unless repaired: full marginal rates, no credits |
| Timing | Locked to payroll through the year | Flexible, declared when profits and your tax year suit | The flexibility that becomes the trap |
| Extras | Builds super, gives lenders payslip income, forms the WorkCover and payroll tax wage base | No super and no workers compensation base. Cheaper to the company, thinner for you | Interest, penalties and repair costs later |
How the mix is actually chosen
Salary to the efficient line. A base salary, commonly sized toward the top of the 30% bracket territory and adjusted for household needs, captures the company deduction, keeps super building and gives lenders clean payslips. It also has to be commercial: a $300,000 salary from a $150,000-profit company is a deduction problem, and a $0 salary while living on drawings is a Division 7A problem in progress.
Dividends for the rest, timed. Year-end or interim franked dividends mop up the remaining cash need, declared once the profit picture is clear, franked at the company's rate, and flexed across years: light dividends in your high-income years, heavier in low ones. This is also the servicing mechanism for any existing Division 7A loan's minimum repayments, using the dividend set-off that amortises old drawings in a tax-orderly way.
The discipline that makes it work
- Dividends need company law backing: profits and solvency, plus a minuted declaration. A bank transfer labelled dividend in June without paperwork is just a drawing with aspirations.
- The franking account must actually cover the credits you attach.
- PAYG withholding on your own salary is as mandatory as it is for any employee.
Companies with unlodged returns cannot do any of this properly. Nobody knows the profits, the franking balance or the loan account, which is how sorting the paperwork later compounds into a deemed-dividend review years on.
Frequently asked questions
How do I pay myself from my own company?
Is salary or dividends better from a company?
Do I have to pay myself super?
Can I just transfer money out when I need it?
Do dividends need paperwork?
General information only - not personal tax, financial or legal advice. Consider your own circumstances or speak to a registered tax agent. Remission of penalties or interest and payment plans are decisions of the ATO and outcomes can't be guaranteed.