How to Pay Yourself as a Company Director: A Comprehensive Guide

To pay yourself as a company director in Australia, you can take a salary through payroll, director’s fees, dividends as a shareholder, or a mix of these. Each one is taxed differently and comes with its own super and paperwork rules. Money you simply transfer to yourself without labelling it as one of these is treated as a loan, and that’s where most of the trouble starts.

If you’ve been moving money from the business account to your personal account “as needed”, you’re far from alone. It’s one of the most common things we see in Lawpath accounting consultations, and it’s very fixable. The trick is sorting it out before your company tax return goes in, not after the ATO asks about it.

Which way to pay yourself as a company director fits your situation?

Start with the hats you wear. As a director, you run the company. As a shareholder, you own part of it. If you also work in it day to day, you’re an employee too. Each hat comes with its own way of getting paid, and most owner-directors wear all three.

Method	Paid for	Deductible to the company?	PAYG and STP?	Super?	Paperwork you need
Salary	Your work as an employee	Yes	Yes	Yes, 12%	Payroll records, ideally an employment agreement
Director’s fees	Your role as a director	Yes	Yes	Yes, 12%	Shareholders’ or board resolution
Dividends	Owning shares	No	No	No	Directors’ resolution, dividend statement
Director loan	Nothing (it’s borrowed)	No	No	No	Repayment by lodgment day, or a complying Division 7A agreement

Our view? Most owner-directors should start with a modest salary and add dividends once the company has paid tax and has a real surplus. Loans should be the exception, not the plan.

How do you pay yourself a director’s salary?

You treat yourself like any other employee. The company runs a pay run, withholds PAYG tax, reports it to the ATO through Single Touch Payroll (STP) and pays super. Nobody else has to sign off, even if you’re the only director.

1. Register the company for PAYG withholding with the ATO, if it isn’t already.
2. Add yourself as an employee in STP-enabled payroll software, with a tax file number declaration and your super fund details.
3. Pick a salary the company can actually sustain through a quiet quarter. There’s no legal minimum for directors, but it needs to be commercially defensible if the company claims it as a deduction.
4. Withhold PAYG using the ATO’s 2026–27 tax tables, which reflect the new 15% rate on income between $18,201 and $45,000.
5. Pay 12% super on your qualifying earnings so it lands in your fund within seven business days of each payday.

A regular salary does a job dividends can’t. Lenders and government agencies want payslips. We regularly speak with directors who need two years of payslips for a home loan, or proof of income for parental leave pay, and discover that a year of informal transfers counts for very little. If a big life event is coming, get on payroll early.

Want it in writing? A simple full-time employment agreement between you and your company records your role, pay and whether super sits on top of your salary or inside it. That one detail changes your take-home pay more than most directors expect.

Setting yourself up as a director in Xero payroll

Xero is the software we see most often in director pay consultations, and the setup questions are almost always the same. Add yourself as an employee, enter your tax file declaration and super fund, then create an earnings line. Use ordinary earnings for a salary, or a separate director’s fees earnings type if you’re paid for the board role. STP reports those two categories differently.

Map the earnings to your wages expense account and make sure the net pay matches what actually leaves the bank. If you’ve been taking transfers informally, your accountant can reclassify them through payroll. That only works if PAYG and super are also dealt with for the right financial year. Wages that are only accrued on paper don’t clear a loan balance the way genuinely paid wages do.

Do you have to pay yourself super as a company director?

Yes, if you pay yourself a salary or director’s fees. Owner-directors get no exemption. The super guarantee is 12% of your qualifying earnings, and since 1 July 2026 it must be paid every payday rather than quarterly. If you only take dividends, the company has no super obligation for you.

Under the ATO’s Payday Super rules, contributions must reach your fund within seven business days after payday. The first payment for a new employee, which includes you if you’ve just put yourself on payroll, gets 20 business days. Qualifying earnings has replaced ordinary time earnings as the base, and you report both your qualifying earnings and your super liability through STP each pay run. Our Payday Super guide covers the changeover in detail.

Two things catch directors out. The ATO’s Small Business Superannuation Clearing House closed on 1 July 2026, so if you used it, you need another way to pay. And unpaid super isn’t just the company’s problem. The ATO can issue a director penalty notice that makes you personally liable for it.

Here’s the bit people miss: super isn’t a cost you’re paying someone else. It’s your money, taxed at 15% in the fund instead of at your marginal rate. For many directors, a salary with super attached is one of the cheapest ways to get profit out of the company. It just arrives later.

What are director’s fees, and do you need them?

Director’s fees pay you for the governance role itself: board decisions, oversight and strategy. A salary pays you for the operational work, like running sales or doing the client work. You can receive both if you do both jobs. Most sole owner-directors keep it simple and take a salary only.

Directors aren’t automatically entitled to fees. Under section 202A of the Corporations Act 2001 (Cth), director remuneration is set by shareholder resolution, unless your company constitution says otherwise. Section 202A is a replaceable rule, so check your constitution first. If you’re the sole shareholder, you can pass that resolution by signing it yourself. Lawpath’s shareholders’ resolution to set director remuneration is built for exactly this.

Tax treatment matches salary. The company withholds PAYG, reports through STP, pays 12% super and claims a deduction. Fees are reported as their own category in STP, so don’t lump them in with wages.

Bringing on a non-executive director or an independent chair? Small-company board fees are usually a fixed annual amount, approved by shareholders and documented in a director agreement that sets out the role, fees and termination terms. We go deeper on approvals and tax in what director fees are and how they’re taxed.

How do dividends work when you’re the director and the shareholder?

Dividends are paid to you as a shareholder, not as a director. No shares, no dividends. They carry no PAYG and no super, and the company can’t deduct them.

Plenty of guides still say dividends can only come out of profits. That stopped being the legal test in 2010. Under section 254T of the Corporations Act, a company can pay a dividend only if:

• its assets exceed its liabilities immediately before it declares the dividend, and the surplus covers the payment;
• the payment is fair and reasonable to shareholders as a whole; and
• it doesn’t materially prejudice the company’s ability to pay its creditors.

Get this wrong and the risk lands on you, not just the company. Paying a dividend counts as incurring a debt under the insolvent trading rules. If the company was insolvent at the time, or the dividend tips it over, you can be personally liable. Document every dividend with a directors’ resolution to pay a dividend and a dividend statement for each shareholder.

Franking is a separate question from whether you’re allowed to pay. A dividend can only carry franking credits for company tax the company has actually paid. A new company that hasn’t lodged its first return usually has nothing to frank with, so any dividend it pays is unfranked and taxed at your full marginal rate. In those years, our accountants usually steer directors to payroll instead.

Got co-founders? Dividends are paid in proportion to shareholdings unless you have different share classes. You can’t quietly pay yourself more. If profit-sharing expectations aren’t written down, a shareholders deed is the place to fix that before money becomes contentious.

What’s the most tax-efficient way to pay yourself as a company director?

Most founders assume dividends are taxed less than salary. With full franking, they mostly aren’t. The company pays 25% (if it’s a base rate entity with turnover under $50 million and no more than 80% passive income), and you pay the difference up to your marginal rate. Add it up and the total sits close to your personal rate either way.

Here’s a simplified example using 2026–27 rates. It assumes the company has $100,000 of profit to hand you, and every extra dollar of your income falls in the 30% bracket (32% with the Medicare levy).

Where $100,000 of profit goes	As salary plus super	As a fully franked dividend
Company tax	$0 (salary and super are deductible)	$25,000
Paid to you	$89,286 salary + $10,714 super	$75,000 dividend + $25,000 franking credit
Your personal tax	$28,571	$7,000 top-up ($32,000 less the $25,000 credit)
Tax inside your super fund	$1,607 (15%)	$0
Total tax	$30,179	$32,000
Cash in your pocket now	$60,714	$68,000
Extra in super	$9,107	$0

So the dividend gives you more cash today. The salary costs less tax overall but parks part of it in super. Neither is a magic trick. What actually moves the needle is timing.

Once your income passes $135,000, your next dollar is taxed at 37% plus Medicare. Profit left in the company is taxed at 25%. That gap is why accountants often suggest a salary that covers your living costs and sits within the 30% bracket. The surplus stays in the company and comes out as franked dividends in years when your income is lower. If you’d like to see how the company’s side is worked out, our guide on how company tax is calculated walks through it.

There’s a catch. Retained cash is the company’s money, not yours. Borrow it informally and you’re straight back into Division 7A. The right split changes every year, so get it modelled before 30 June, not after. Our salaries vs dividends vs drawings comparison covers more scenarios.

What happens if you just transfer money to yourself?

Your company is a separate legal entity, even if you’re its only director and shareholder. That’s the corporate veil at work, and it cuts both ways. The company’s money isn’t yours. Any transfer that isn’t processed as salary, fees or a declared dividend is treated as a loan from the company to you under Division 7A of the Income Tax Assessment Act 1936.

A loan isn’t a crime. Leaving it unresolved is the problem. By the company’s tax return lodgment day, you need to do one of three things:

• Repay it in full with real money. Journal entries alone don’t count, and repaying with money you re-borrow from the company can be disregarded.
• Convert it. Declare a dividend and offset it against the loan, or put yourself on payroll and apply genuinely paid wages to it.
• Put it on a complying loan agreement. That means written terms, interest at least at the ATO benchmark rate (8.77% for 2026–27), a maximum term of seven years unsecured or 25 years if secured by a registered mortgage over real property, and minimum repayments by 30 June each year.

Do none of these and the balance becomes a deemed dividend. It’s added to your assessable income with no franking credits attached, which is the most expensive way to take money out of a company. A Division 7A loan agreement template sorts out the paperwork, and our explainer on whether directors can borrow from their company covers the rules in more detail.

One myth we hear: “I’m a director but not a shareholder, so Division 7A doesn’t apply.” It may still apply if you’re an associate of a shareholder. Even when it doesn’t, a loan from your employer can create a fringe benefits tax bill instead. Either way, there’s no free money in the company account.

Which traps catch consultants and family-run companies?

If your company mainly earns money from your personal skills and effort, the personal services income (PSI) rules may apply. Think IT contractors, consultants and one-person professional firms. Unless the company passes a test to be treated as a personal services business, its net PSI is attributed to you and taxed at your marginal rate. Keeping profit in the company at 25%, or sending dividends to family members, won’t change that.

The results test is the one most contractors look at first. Broadly, at least 75% of your PSI must come from producing a result, supplying your own tools, and fixing defects at your own cost. If 80% or more of your income comes from one client, most of the other tests are off the table without an ATO determination. Check this before you build a pay strategy around retained profits.

Paying your spouse or adult kids? A salary for genuine work is fine. The company can only deduct an amount that’s reasonable for the work actually done. Splitting dividends with family requires them to hold shares, and creative share structures attract ATO attention. Get advice before you set one up.

What we see in Lawpath accounting consultations

Director pay is one of the most regular topics in our accounting sessions. The same five patterns come up again and again.

The year-end loan surprise. A director pulls money out all year, then the accountant opens the balance sheet and finds a director’s loan nobody planned. The fix is usually payroll for the future, plus a decision on the existing balance before the return is lodged. The cost is in the scramble, not the fix.

Backdating salary to clear a loan. Directors often ask whether they can process a lump of salary to wipe a loan balance. You can, but PAYG and super apply to it, and they create an immediate cash cost for the company. A common recommendation is staged pay runs over a few months rather than one big hit.

Dividends before there’s anything to frank. First-year companies want to pay dividends before their first tax return. With no company tax paid, there are no franking credits. Our accountants usually recommend wages that year, and dividends once the return confirms what’s in the franking account.

Maxed salary, still short of cash. Directors who’ve already set an efficient salary sometimes want to top up with a director’s loan. It can work, but only with a complying agreement and a real plan to repay. Treat it as borrowing, because that’s what it is.

Dividends only, super forgotten. Directors who pay themselves purely through dividends can go years without a cent going into super. Nothing forces it. A small salary or regular personal contributions keeps your retirement savings from stalling while the business grows.

How do you set up director pay properly? A step-by-step checklist

1. Check your constitution. Confirm who sets director remuneration and how dividends are declared. Our list of what to include in a company constitution is a good reference.
2. Choose your mix for the next 12 months. Pick a base salary, decide whether fees apply, and set when you’ll consider dividends.
3. Paper it. That means an employment agreement for salary, a shareholders’ resolution for fees, a directors’ resolution for each dividend, and a Division 7A agreement for any loan.
4. Set up payroll and Payday Super. Register for PAYG withholding, switch on STP, and make sure your software pays super each payday.
5. Stop informal transfers. If you need cash between pay runs, run an extra pay run rather than a bank transfer.
6. Review before 30 June. Check the loan account, model the salary and dividend split, and make any Division 7A minimum repayments.

Frequently asked questions

How do I pay myself as a sole company director?

Put yourself on payroll with PAYG withholding, STP reporting and 12% super, then add franked dividends once the company has paid tax and has a surplus. As sole director, you can sign the resolutions yourself. Just make sure every payment is recorded as salary, fees or a dividend, never as an untagged transfer.

Do I have to pay myself super as a director?

Yes, if you receive a salary or director’s fees. The super guarantee is 12% of qualifying earnings, and under Payday Super it must reach your fund within seven business days of each payday. Dividends don’t attract compulsory super, so consider personal contributions if dividends are your main income.

What’s the difference between director’s fees and a director’s salary?

A salary pays you for operational work, such as managing the business. Director’s fees pay you for the board role: governance, oversight and strategy. Both attract PAYG and super and are deductible. Fees need shareholder approval under your constitution or section 202A, and STP reports them separately from wages.

Are dividends better than salary for tax?

Not automatically. With full franking, the total tax ends up close to your personal marginal rate either way. Dividends give you more cash now, while salary adds super taxed at 15%. The real benefit comes from leaving profit in the company at 25% and paying dividends in lower-income years.

What is a Division 7A loan?

It’s money a private company lends or pays to a shareholder or their associate that isn’t salary, fees or a declared dividend. Unless it’s repaid or put on a complying loan agreement by the company’s lodgment day, it becomes an unfranked deemed dividend in your hands. The 2026–27 benchmark interest rate is 8.77%.

Can a company pay dividends if it hasn’t made a profit this year?

It can, if its assets exceed its liabilities, the payment is fair to all shareholders, and creditors aren’t materially prejudiced. But without company tax paid, the dividend usually can’t be franked, so you pay full personal tax on it. Many directors take wages in that situation instead.

How do I set up a director’s salary in Xero?

Add yourself as an employee in Xero Payroll, enter your tax file declaration and super fund, and create an earnings line (ordinary earnings for salary, or a director’s fees type for board fees). Map it to wages expense, run STP pay runs, and check that super is paid within seven business days.

How much should a small company pay its board of directors?

There’s no set rate. Fees should reflect the time and responsibility involved and what the company can afford. Shareholders approve the total by resolution, and each non-executive director’s terms go in a director agreement. Fees attract PAYG, STP reporting and super, just like salary.

If I am a company director, am I self-employed?

No. Your company is a separate legal entity, so you’re an officer of it, not a sole trader. If you take a salary, you’re the company’s employee for tax and super purposes. Self-employment applies to sole traders and some contractors who are taxed on business profits personally.

Can I change how I pay myself during the year?

Yes. Salary can change from the next pay run, though cutting it may affect lending applications that rely on your payslips. Switching to dividends needs a directors’ resolution and a solvency check. Talk to your accountant before 30 June so the year’s numbers still add up.

Get your director pay sorted before tax time

You’re not behind. Most directors set up their company first and figure out how to pay themselves later. That’s normal. The good news is that one tidy-up (payroll in place, the loan account dealt with, the paperwork signed) protects you for years.

Want someone to do the modelling for you? Book a Lawpath company accountant to set your salary and dividend split, check your director’s loan, and get it all lodged on time.