Most company directors don’t overpay tax because their rates are too high. They overpay because of how and when they take money out of the business. Treat the company bank account like your own and Division 7A can turn ordinary drawings into an unfranked dividend that is effectively taxed twice. Pay yourself on purpose and the same profit can cost you thousands less in tax each year.

This guide covers the four ways to pay yourself from a private company: salary, dividends, super and loans. It works through the Division 7A rules using the ATO’s 2026-27 benchmark interest rate of 8.77%, with a worked complying loan on both the 7-year and 25-year terms, and covers the High Court’s June 2026 Bendel decision on bucket companies, which most Division 7A guides haven’t caught up with yet.

Key takeaways

• A company is a separate legal entity. Its money isn’t yours until it’s paid to you as salary, a dividend, a super contribution or a properly documented loan.
• Salary and fully franked dividends usually end up taxed at about the same total rate. The real savings come from timing, super and avoiding the Division 7A trap.
• Money taken out without a plan can become an unfranked deemed dividend. At the top tax rate, that costs an extra $13,250 for every $100,000 of profit.
• A Division 7A loan needs a written agreement before the company’s lodgment day, interest at no less than the ATO benchmark rate (8.77% for 2026-27) and a minimum repayment by 30 June each year.

Why your company’s money isn’t your money

When you run your business through a private company, you and the company are two different taxpayers. The company earns the profit, pays tax on it at 25% if it’s a base rate entity (aggregated turnover under $50 million and no more than 80% passive income) or 30% otherwise, and owns whatever is left. You might be a shareholder, a director and an employee all at once, but none of that makes the company’s bank account yours. If you’ve moved across from being a sole trader, this is the biggest mindset shift.

There are only four legitimate ways to move money from the company to you, and every one of them is taxed somewhere. The question isn’t how to avoid tax altogether. It’s where the tax falls, at what rate and in which year.

The four ways to pay yourself from a company

1. Salary or director’s fees

A salary or director’s fee is a normal business expense, so the company claims a deduction and you pay tax at your personal marginal rate. The company has to withhold PAYG from each payment, report it through Single Touch Payroll and pay super guarantee on top, currently 12% of your qualifying earnings.

Since 1 July 2026, Payday Super means that super has to reach your fund within seven business days of each payday, and that includes directors paid as employees. Quarterly catch-ups on your own super are over.

A regular salary uses your lower tax brackets every year, builds super automatically and gives you payslips, which lenders like to see. Under the 2026-27 resident tax rates, the first $18,200 is tax-free and income up to $45,000 is taxed at 15%, so a $45,000 salary costs you under 11% in tax and Medicare levy before offsets. A year where you don’t use those lower brackets is a year you can’t get back.

2. Dividends

A dividend is paid out of profit the company has already paid tax on, so the company can’t deduct it. Instead, it can attach franking credits for the tax already paid. If the company paid tax at 25%, a fully franked dividend of $75 carries a $25 credit. You include $100 in your taxable income, pay tax at your marginal rate and subtract the $25 credit. If your rate is below 25%, the excess credit reduces the tax on your other income, and anything left over is refunded.

Dividends are flexible: there’s no super guarantee on them and you can time them to suit your income. But they can only go to shareholders, in line with the rights attached to their shares, and they must be properly declared and minuted, not created with a journal entry after 30 June.

3. Super contributions

Paying yourself into super is the most tax-effective option available, as long as you don’t need the money until retirement. Concessional contributions, which include your super guarantee, salary sacrifice and any extra contributions the company makes for you, are taxed at 15% in the fund. The concessional contributions cap for 2026-27 is $32,500, up from $30,000. If your total super balance was under $500,000 on 30 June 2026, you may also be able to use unused cap amounts from up to five previous years.

If your income and concessional contributions together are above $250,000, Division 293 tax adds another 15% on some or all of those contributions. That still beats a 47% marginal rate.

4. Loans from the company

Taking money now and sorting it out later is the most common approach, and the riskiest. Anything you take that isn’t salary, a dividend or super is generally recorded as a loan from the company to you, which is where Division 7A comes in.

Salary vs dividends: what each $1,000 of profit is actually worth

Directors often ask whether salary or dividends saves more tax. For a company paying 25% tax, the answer is that it usually makes little difference to the total. What changes the result is whether the money goes into super, stays in the company or leaks out as a Division 7A deemed dividend.

The table below follows $1,000 of company profit for a director whose taxable income sits between $135,001 and $190,000 in 2026-27, so their marginal rate is 37% plus the 2% Medicare levy. It’s an illustration with simplified figures, not advice for your situation.

Three things stand out. First, salary and franked dividends land in the same place, so the choice comes down to super, cash flow and paperwork rather than tax rate. (The salary row leaves out the 12% super guarantee paid on top, which costs the company but lands in your super.) Second, super leaves you $240 better off per $1,000, although it’s locked away until you meet a condition of release.

Third, the Division 7A row is the one to avoid. The company has already paid its tax, and a deemed dividend generally can’t carry franking credits, so you are taxed again in full: 54.25% in total at this rate. At the top marginal rate of 47%, the gap is $13,250 for every $100,000 of profit, with $60,250 in total tax through a deemed dividend against $47,000 through a properly franked dividend.

What is Division 7A and why does it catch so many directors?

Division 7A is part of the Income Tax Assessment Act 1936. It stops private company owners from taking profits out tax-free by dressing them up as loans, payments or forgiven debts. If a private company lends money to a shareholder or an associate of a shareholder during the year, and the loan isn’t repaid or put on complying terms by the company’s lodgment day, the outstanding amount is treated as an unfranked dividend paid at the end of that income year.

A few details make it wider than most people expect:

• Associates count. Your spouse, children and other relatives, companies you control and trusts you can benefit from can all be caught, not just you.
• It isn’t only loans. Paying your private expenses, private use of company assets and forgiving a debt you owe the company can all be caught too.
• What you do with the money doesn’t matter. Using company money to fund another business or an investment can still be a Division 7A loan.
• Round robins don’t work. Repaying a loan before lodgment day and borrowing the same money back, or repaying with money borrowed from the company, doesn’t count as a repayment.
• There is a ceiling. The total deemed dividend for a year is capped at the company’s distributable surplus for that year.

The everyday version is simple. You pay a personal credit card from the business account, or transfer $5,000 a fortnight to yourself and call it wages without running it through payroll. It all lands in a director’s loan account, and by tax time that account might hold $80,000 or $150,000. We see this most with builders and construction businesses, where large progress payments make the bank balance look healthier than the profit really is. That’s why the loan account should be reviewed well before your company tax return is prepared, not as an afterthought at lodgment.

How to make a Division 7A loan compliant: the section 109N checklist

If you can’t repay what you’ve taken before lodgment day, the fix is a complying loan agreement under section 109N. The ATO sets out the requirements on its Division 7A loans guidance:

1. Put it in writing before lodgment day. The agreement must exist before the company’s lodgment day for the year the loan was made, which is the earlier of the return’s due date and the date it’s actually lodged. There’s no prescribed form, but it should name the parties, set out the amount, term, repayment terms and interest rate, and be signed and dated.
2. Charge at least the benchmark interest rate. For each year after the year the loan is made, interest must be at least the Division 7A benchmark interest rate. That’s 8.77% for 2026-27, up from 8.37% in 2025-26. It’s based on the Reserve Bank’s published indicator rate for bank variable housing loans, and it’s set fresh for each income year.
3. Stay within the maximum term. The limit is 7 years for most loans, including any unsecured loan, or up to 25 years if the whole loan is secured by a registered mortgage over real property worth at least 110% of the loan when it’s made, after any earlier secured debts.
4. Make the minimum yearly repayment by 30 June. Starting in the year after the loan is made, you must repay at least the minimum each income year. A shortfall can be treated as an unfranked dividend.
5. Keep evidence of every repayment. You can meet a repayment by offsetting a dividend the company owes you, but the dividend must be declared, and the offset agreed and carried out, by 30 June, with contemporaneous evidence. The ATO’s view is that a journal entry only records a transaction, it doesn’t create one.

Worked example: a $100,000 Division 7A loan in 2026-27

Here’s how the numbers play out. The example is hypothetical, uses simplified figures and isn’t based on any client.

Jess is the sole director and shareholder of a Gold Coast building company. During 2025-26 she took $100,000 from the company towards a house deposit, and nothing was repaid by 30 June 2026. Before the company’s 2025-26 lodgment day, her accountant puts the balance on a complying loan agreement.

Her first minimum yearly repayment is due by 30 June 2027. The ATO’s formula is: minimum repayment = P × I ÷ (1 − (1 ÷ (1 + I))^T), where P is the balance owing at the end of the previous year, I is the benchmark rate for the current year and T is the remaining term in years. Using 8.77%, and assuming the repayment is made on 30 June 2027:

A few things follow from those numbers:

• The $8,770 of interest is assessable income for the company. Because Jess used the money for her home, the interest isn’t deductible to her.
• On the 7-year loan, if she repays only $15,000 in 2026-27, the $4,716 shortfall can be treated as an unfranked dividend.
• She can’t fund the repayment by borrowing again from the company. The usual approach is for the company to pay her enough salary, or declare a franked dividend before 30 June, to cover it. In other words, the loan doesn’t avoid tax. It spreads it over the life of the loan.
• The 25-year option roughly halves the yearly repayment, but barely reduces the balance in the early years. The benchmark rate is reset every year, so the minimum has to be recalculated every year too.

That’s why a Division 7A loan works best as a stopgap, not a pay strategy. It buys time to pay yourself properly. It doesn’t make the tax disappear.

The Bendel decision: what changed for trusts and bucket companies

Many family groups run their business through a discretionary trust and distribute part of the profit to a bucket company to cap the tax at the company rate. For years, the ATO’s view was that if the trust didn’t actually pay that money across, the unpaid entitlement was itself a Division 7A loan.

In June 2026, the High Court rejected that view in Commissioner of Taxation v Bendel [2026] HCA 18. By a 5:2 majority, the Court held that an unpaid present entitlement owed to a corporate beneficiary is not, simply because it stays unpaid, a loan for Division 7A purposes.

In its Bendel decision impact statement, the ATO says that where a company beneficiary takes no action on its entitlement, no Division 7A loan arises. It’s equally clear that the decision isn’t a free pass:

• If the entitlement is paid, replaced or put on loan terms, Division 7A may still apply.
• If the trust pays or lends money to a shareholder or associate while the entitlement is outstanding, Subdivision EA may apply.
• If the arrangement looks like a reimbursement agreement, section 100A can tax the trustee at the top marginal rate.

Loans and payments made directly by a company to its owners are unaffected, so everything else in this guide still applies. If your group lodged earlier years on the old basis, ask your accountant whether an amendment is worth pursuing.

Trust owners also have a bigger change coming. The 2026-27 Budget proposed a 30% minimum tax on discretionary trust income from 1 July 2028. It isn’t law yet, but under the draft a company beneficiary gets no credit for the trustee’s tax, which would upend the bucket company maths. We break down the draft in our article on family trust tax changes.

A tax-effective way to pay yourself: five moves

1. Pay a regular salary that uses your lower brackets. Run it through payroll and let Payday Super handle your super each payday. Getting director payroll right from the start prevents most loan account problems.
2. Top up with franked dividends, timed to your tax position. Declare them when your income leaves room in a lower bracket, not when the bank balance looks healthy. Under progressive rates, lumpy years cost more than smooth ones.
3. Use your concessional super cap. The $32,500 cap includes your super guarantee, so many directors have room for extra contributions taxed at 15% rather than 39% or 47%.
4. Keep the loan account clean. Stop paying personal costs from the business account and review the loan account before 30 June. Repay it, clear it with a declared dividend or salary, or put it on a complying agreement before lodgment day.
5. Check your structure still fits. A standalone company, a trust with a corporate beneficiary and a holding company group each change how you can pay yourself, and the proposed trust changes make this a sensible year to review. Our business structuring advice models the options against your actual numbers before anything moves.

Frequently asked questions

What is Division 7A in simple terms?

Division 7A is a set of tax rules that treats money or benefits a private company gives its shareholders or their associates as a dividend, unless it’s properly dealt with. It covers loans, payments and forgiven debts, and the result is usually an unfranked dividend taxed at your marginal rate.

What is the Division 7A benchmark interest rate for 2026-27?

It’s 8.77% for the income year ending 30 June 2027, up from 8.37% for 2025-26. The ATO sets the rate each year using the Reserve Bank’s indicator rate for bank variable housing loans, published before the income year starts.

Is it better to pay yourself a salary or dividends?

For a company paying 25% tax, the total tax is usually similar. Salary builds super, uses your lower brackets and gives you payslips, while dividends are more flexible and carry no super guarantee. Most directors are best served by a planned mix of both, settled before 30 June.

Does Division 7A apply to trusts?

It can apply to payments and loans from a private company to a trust. Since the High Court’s Bendel decision in June 2026, an unpaid entitlement owed to a company beneficiary is not automatically a Division 7A loan, but Subdivision EA and section 100A can still apply.

Is Division 7A loan interest tax deductible?

The company must include the interest in its assessable income. You can generally only deduct it if you used the money to earn assessable income, such as an investment. Interest on money used for private purposes, like your home, isn’t deductible.

How do I avoid a Division 7A deemed dividend?

Repay the amount in full before the company’s lodgment day, or put it on a complying written loan agreement by then and make the minimum yearly repayment by 30 June in each later year. Better still, pay yourself through salary, dividends and super so the loan account never builds up.

Final thoughts

Paying yourself from a company comes down to three habits: use your lower tax brackets every year, put what you can into super and never let company money become a Division 7A problem by default. The rates matter less than the plan.

If your loan account has grown, or you’re not sure how this year’s profit should come out of the company, talk to us before 30 June, not after. Book a call with the New Wave team and we’ll look at your numbers, your loan account and your structure, and tell you straight what to do next.

General information only, current as at 16 October 2026 for the 2026-27 income year. It isn’t personal tax, legal or financial advice. Examples are hypothetical and use simplified figures. Speak with a qualified adviser before acting on anything in this article.