Paying yourself from your company

Hey guys,

I know this post is probably better suited to a small business forum but this forum has its fair share of small business owners so I’m sure someone can help me out.

When we first established our business, it was under a partnership structure and any money paid out from the business to the two partners was simply added to our PAYG (day job) incomes and taxed accordingly at the end of the financial year.

About 3 months ago we registered the business as a company – the two partners are now the two directors (and only employees). We now would like to pay ourselves a lump sum from the company (as we did when it was under a partnership). Do I simply pay each director (myself and business partner) the lump sum and its added to our PAYG incomes and taxed at the end of the financial year? Or is there a lot more I need to consider?
 
You can pay it out as directors fees and keep it on a seperate line for accounting purposes.
Each direcotr will then pay tax based on their situation.

You can also pay it out as dividends and each will pay tax according to their situation.
 
Are you still registered as a PAYE employer? If so, then you can withdraw the money as salary; ensure you have taken out the correct tax and go from there.

You can only pay yourself as dividends if you have the accumluated profit from previous years and have already been taxed. You also need to ensure that your dividend history is all properly documented as the tax office might not allow you the 30% company dividend imputation.
 
When we first established our business, it was under a partnership structure and any money paid out from the business to the two partners was simply added to our PAYG (day job) incomes and taxed accordingly at the end of the financial year.
Now try that with Centerlink - you just get your regular tax returns with the partnership income lumped in there with all your other income sources but Centerlink DEMANDS a separate tax return just for the partnership :confused:
 
The Dividend thing is normally achieved during the year by drawing the money and accounting for it against a loan account (in your case a loan account for each person).

At the end of the year (tax return time maybe 9 months later) your accountant should then rework the figures to break the amounts drawn into directors fees, dividends or other moneys required to offset personal purchases.

When you do your personal tax (not before the company has done its - generally at same time) you declare the relevant amount on your tax return. If you are drawing it as dividends then the company will need to pay 30% tax on the money and you will get a imputation credit.

In the next tax year depending how the income/disbursement was treated either your company or yourself will get a progressive PAYG bill from the ATO based on the previous years return. This is also based on how much is involved whether you will get this 3 monthly or wider intervals.

The personal loan accounts need to be netted of each year so if you draw more than there is income you may need to reimburse money to the company or your accountant will need to adjust the accounted figures;)

Cheers
 
I'm not an accountant so run this past yours, but if the company pays tax, you would pay yourselves dividends out of after-tax profits and it would have franking credits according to the amount of tax the company paid.

The amount of dividend is added to your income and the franking amount is added to your PAYG credits. The franking credits can, of course, increase any refund due when you lodge your return.
 
I think most of the time there would be no tax difference regardless of which road you choose. I think the main difference would be that if you take a salary you'll need workers comp insurance if it is above the minimum threshold level.
 
I think most of the time there would be no tax difference regardless of which road you choose. I think the main difference would be that if you take a salary you'll need workers comp insurance if it is above the minimum threshold level.

Directors are excluded from Workers Comp insurance (at least in QLD).
 
loan moneys

Have you started your company with your own money; i.e. have you loaned your company some of your own money?

If your company is running on a loan from the directors I believe the company could pay back bits of the loan to the directors and no one pays any tax.

Can anyone confirm this?
 
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