Paying Yourself From Your Business: Cut the Tax Hit Every Year

Paying yourself from your business is one of those things most owners never really decide. Someone set up a company or a trust back when the business was doing $200,000 a year, and the habit stuck. Ten years later you’re turning over $5 million and still paying yourself the same way your first accountant set it up.

That matters, because a wage, a dividend, a trust distribution and drawings are each taxed differently. Get the mix wrong and it can cost you thousands every year, or set up a nasty bill down the track. Get it right and it doesn’t.

In Episode 27 of Business Uncut, Reuben walks through the four ways money gets from your business into your pocket, what each one actually costs in tax, and the five-step order he’d use them in.

The four ways to pay yourself

The four options aren’t equal, so it’s worth being clear on what each one is:

• A wage is a salary through payroll, the same as any employee.
• A dividend is a share of company profit paid to the shareholders after the company has paid its tax.
• A trust distribution is where a family trust hands its profit out to family members, who are called beneficiaries.
• Drawings is just taking money out of the account when you need it.

Most owners use some mix of these without ever choosing it. That’s not a strategy. That’s inertia.

Hypothetical: Dave the builder

Say, hypothetically, there’s a builder called Dave. His company turns over about $4 million a year, and he pays himself by transferring money out whenever the mortgage is due. No wage, no dividends, no paperwork. At the end of the year his accountant has to untangle the whole thing.

Here’s what Dave doesn’t know. When you take money out of a company and it isn’t a wage or a dividend, the tax law can treat it as a dividend anyway: an unfranked one, which means you get no credit for the tax the company has already paid. That rule is called Division 7A, and it catches a lot of good operators. Dave isn’t dodgy. He’s just busy, and busy is expensive.

Step 1 Pay yourself a proper wage first

A wage is a tax deduction for the company, it builds your super, and it gives you clean payslips when the bank wants proof of income. Your company pays super on top at 12%, and under Payday Super, which started on 1 July 2026, that super has to land in your fund within seven business days of payday.

Hypothetically, if you set your wage at $150,000, that’s another $18,000 going into super for you. The principle: pay yourself like you’d pay a senior employee.

Step 2 Decide what the business needs to keep

This is the step everyone skips. If your company is a base rate entity, which basically means a smaller company earning mostly trading income, it pays 25% tax on profit. Your personal top rate is 45%, plus 2% Medicare.

So profit you leave in the company for stock, equipment or a cash buffer is taxed at 25%, not 47%. That’s not a loophole, it’s a deferral: you’ll pay the rest when you take it out. The principle: only pull out what you actually need personally.

Step 3 Top up with franked dividends, and time them

Here’s the maths with simple numbers. Say the company makes $100 of profit. It pays $25 in tax, then it can pay you a $75 dividend with a $25 franking credit, which is basically a receipt for the tax the company has already paid. If you’re on the top rate, you owe $47 on that $100, less the $25 credit, so you top up $22. Total tax: $47, the same as a wage.

There’s no magic here. The win is choice: you decide when, and you can take dividends in a year when your other income is lower. One catch: if your company pays 30% rather than 25%, your franking credits follow that rate, so check which one you’re on. The principle: dividends are about timing, not tax-free money.

Step 4 Use a family trust properly, and keep an eye on 2028

A trust can split profit between family members, so an adult child at uni or a spouse on a lower income pays less tax on their share. But the money has to genuinely be theirs. If it lands in their name and quietly comes back to you, the Tax Office has a rule for that, and it isn’t friendly.

There’s also a change on the horizon. In the May 2026 Budget the government proposed a minimum 30% tax on trust income from 1 July 2028. It’s proposed, not law, and consultation on the draft closed in September. If it goes through as drafted, profit sent to a company beneficiary (a bucket company) could end up taxed at a combined 55% to 60%, on advisers’ estimates. Our guide to the proposed family trust tax changes covers what to do before the rules are final. The principle: don’t build your next five years on a structure that might shift underneath you.

Every dollar you take out of the business needs a label.

Step 5 Kill the drawings habit

Taking money whenever you feel like it is how you end up with a loan account, which is the business recording that you owe it money. Then Division 7A kicks in, and you’re either making set yearly repayments with interest or copping that unfranked dividend.

Hypothetically, if Dave has pulled out $200,000 with nothing documented, that’s a problem sitting on his books. The principle: every dollar out needs a label.

Four traps to avoid

Even with the right order, watch for these:

Your one action this week

Frequently asked questions

General information only, not personal tax, legal or financial advice. Figures are hypothetical examples. Talk to your adviser about your own situation.