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

As a company director in Australia, you can pay yourself through a director’s salary, director’s fees, dividends, or a combination of all three. Each method has different tax treatment, super obligations, and compliance requirements , so the right mix depends on your company’s profitability, your personal tax position, and how much income predictability you need.

The question comes up constantly in Lawpath accounting consultations: “I’ve been moving money between my company account and my personal account , is that okay?” The answer is: it depends entirely on how it’s been classified. Get it wrong and you’re looking at Division 7A deemed dividends and extra tax. Get it right and you can structure a very efficient income.

Here’s a plain-English breakdown of every method, what it costs, and how to choose.

How does paying yourself a director’s salary work?

Paying yourself a salary as a company director means treating yourself like an employee. The company withholds PAYG tax, pays 12% superannuation, and reports each pay run to the ATO via Single Touch Payroll (STP).

This is the method most advisors recommend for directors who work full-time in the business. It gives you a predictable income stream, keeps your super funded, and creates a clean paper trail. Banks also prefer it: mortgage lenders are much happier with two years of payslips than a patchwork of dividend statements.

To set up a director’s salary:

• Register the company for PAYG withholding with the ATO (if not already done).
• Set up Single Touch Payroll (STP) through your accounting software (Xero, MYOB, and QuickBooks all support this). STP reporting is mandatory for all employers regardless of size.
• Decide on a reasonable salary that reflects your role and the company’s financial position. There’s no legal minimum for directors, but the ATO expects the salary to be commercially justifiable if it’s being claimed as a company deduction.
• Calculate super at 12% of your ordinary time earnings (the current Super Guarantee rate from 1 July 2025) and pay it to your nominated fund at least quarterly. From 1 July 2026, Payday Super applies , contributions must reach the fund within seven business days of each pay run.
• Withhold PAYG tax from each pay, based on the ATO’s tax withheld calculator, and report it via STP.

One thing that often catches first-time directors off guard: your salary is a deductible expense for the company, which reduces the company’s taxable income. So if the company is on the 25% small business tax rate and you pay yourself a $90,000 salary, the company saves $22,500 in tax on that portion of profit. The trade-off is that you then pay personal income tax on that $90,000 at your marginal rate. The net effect varies , the salary structure makes more sense when your personal marginal rate is lower than the company rate.

What are director’s fees and when do they apply?

Director’s fees are payments specifically for your services as a director: attending board meetings, governance oversight, and management decisions. They’re not payments for operational work you do inside the business. That distinction matters legally.

Under section 202A of the Corporations Act 2001 (Cth), directors are not automatically entitled to remuneration. Their entitlement to fees must come from one of three sources: the company’s constitution, a shareholder resolution, or a separate director’s service agreement. If none of these exist, a director can’t lawfully demand payment , even if they’ve been doing the work.

Note that section 202A is a replaceable rule, meaning your company constitution can modify or replace it. If you’re the sole director of a small proprietary company, you’ll typically pass a shareholders’ resolution to authorise your own fees. Lawpath has a Shareholders’ Resolution to Set Director Remuneration template that covers this.

Tax treatment for fees is almost identical to salary: PAYG withholding applies, super is payable at 12%, and the company can claim a deduction. The key difference from salary is that fees don’t come with franking credits attached , you can’t offset personal tax with company tax credits the way you can with dividends.

One situation where fees work better than salary: non-executive directors who don’t work in the business day-to-day. A chair or independent board member who attends quarterly meetings typically receives director’s fees rather than a salary with employment entitlements attached.

One situation where they don’t: if your company acts as trustee for a trust, a director generally has no right to remuneration for trustee duties unless a resolution at a general meeting specifically authorises it.

How do dividends work for company directors?

Dividends are distributions of the company’s after-tax profits to shareholders. To receive dividends, you need to hold shares in the company , being a director alone doesn’t qualify you.

The company must pass a formal board resolution to declare a dividend, and under section 254T of the Corporations Act 2001, dividends can only be paid if the company’s assets exceed its liabilities, the payment is fair and reasonable to shareholders as a whole, and it won’t compromise the company’s ability to pay its creditors. Lawpath has a Directors’ Resolution to Pay a Dividend template to document this properly.

Here’s how the tax works in practice. Say your company earns $100,000 profit and pays 25% corporate tax, leaving $75,000 available to distribute. You receive a fully franked dividend of $75,000. With the $25,000 in franking credits attached, your assessable income is $100,000. If your marginal rate is 34.5% (the 32.5% rate plus 2% Medicare levy), you’d owe $34,500 in personal tax, offset by the $25,000 franking credit , leaving $9,500 in additional tax to pay on top of what the company already paid.

If your marginal rate is below 25% (i.e., your total taxable income including the dividend is under $45,001), the ATO refunds the difference. This is where dividends become genuinely tax-effective , a director-shareholder who draws a modest salary and tops up with dividends can end up paying significantly less total tax than one who takes everything as salary.

Dividends are not subject to PAYG withholding or super contributions. That’s both an advantage and a risk: it’s efficient from a cash-flow standpoint, but it means your super doesn’t get topped up unless you make voluntary contributions or also pay yourself a salary.

One thing to be aware of: if the company becomes insolvent, dividends paid in the period before insolvency may be clawed back as unfair preferences. Document every dividend payment properly and only distribute genuine after-tax profits. If you’re uncertain about the company’s financial position at the time of distribution, get advice before declaring.

What happens if you just take money out of the company? Division 7A explained.

This is the section most director remuneration guides skip. It’s also the most important one to understand.

A company is a separate legal entity. That means you can’t treat the company bank account as a personal account, even if you’re the only director and shareholder. When money moves from the company to you without being declared as salary, fees, or dividends, it’s classified as a loan from the company to you. That loan is governed by Division 7A of the Income Tax Assessment Act 1936.

In practice, Lawpath accountants regularly see this situation: a director has been drawing money out “as needed” for 12 months, and at year-end the director’s loan account shows a significant balance. If that balance isn’t repaid before the company’s tax return due date, it’s deemed a dividend , a taxable one, without the benefit of franking credits. The ATO also charges interest and may apply penalties.

The fix is either to repay the loan before the due date, or formalise it as a complying Division 7A loan agreement with a minimum benchmark interest rate (currently set by the ATO each year) and a repayment term of up to seven years. Neither outcome is catastrophic, but both are preventable with proper setup from day one.

If you’ve already been drawing money informally, talk to a taxation lawyer or accountant before your company’s next tax return lodgement date. Fixing it before the due date is far cheaper than dealing with the ATO’s deemed dividend assessment after it.

Salary vs dividends vs fees: which is right for you?

The honest answer is that most founder-directors end up using a combination of salary and dividends, with fees sometimes layered on top for specific governance roles.

Here’s a simple framework to work out the right mix:

Situation	Likely best approach
New business, still unprofitable	Salary only (or defer until cash flow allows). Dividends require after-tax profit to exist first.
Profitable business, you need consistent income	Salary to cover living costs + dividends at year-end from surplus profit.
You’re the only director-shareholder	Salary + dividends is most tax-efficient. Get an accountant to model the split annually.
You have other shareholders who don’t work in the business	Salary for the working director; dividends distributed proportionately to all shareholders. Director’s fees may also apply for board governance.
You need income but the company hasn’t paid tax on profit yet	Salary is the only option. Dividends can only be paid from profits the company has actually earned and reported.
You want to defer income for tax purposes	Hold off declaring dividends until a lower-income year. Salary is harder to defer once the payroll cycle is set.

One question worth asking your accountant before setting your salary level: are you on a “total remuneration” employment contract (where super is included in the package total) or an “above the line” contract (where super is paid on top)? The answer changes your take-home pay meaningfully at higher salary levels.

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

For most director-shareholders of profitable Australian companies, the most tax-efficient structure is a modest salary combined with franked dividends at year-end. Here’s why it works.

The salary portion funds your living costs, keeps your super contributions running, and is tax-deductible for the company. Set it at a level where your personal marginal tax rate is 32.5% or below (that’s a taxable income under $135,000 for 2025-26). Above that threshold, the personal tax cost of additional salary starts to exceed the company’s benefit from the deduction.

Once the company has paid its 25% corporate tax on remaining profits, distribute the surplus as fully franked dividends. The $0.25 in franking credits per dollar of after-tax profit offsets some or all of your personal tax on the dividend. If your marginal rate is 34.5% (the 32.5% rate plus Medicare levy), you pay only 9.5 cents of additional personal tax per dollar of franked dividend , far less than receiving the same amount as salary would cost at higher income levels.

Two things can reduce the efficiency of this approach. First, if the company hasn’t yet paid tax on a given year’s profits, there are no franking credits to attach. Partly franked or unfranked dividends are taxed at your full marginal rate with no offset, making salary the better option in that situation. Second, if you have other shareholders, dividends must be distributed proportionately. You can’t selectively pay yourself more dividends than your shareholding entitles you to without risking ATO scrutiny. Check the salaries vs dividends guide for a deeper breakdown of when each method applies.

The split that works best varies by year, depending on the company’s profitability, your other personal income, and whether you want to maximise super contributions. A Lawpath accountant can model the optimal salary-to-dividend ratio for your specific situation annually. It’s one of the most straightforward tax planning exercises there is, and it consistently saves founder-directors meaningful amounts at year-end.

What Lawpath advisors see in director remuneration consultations

Across hundreds of consultations each year, a few patterns come up again and again.

The most common issue is informal withdrawals that haven’t been categorised. Directors assume that because they own the company, they can move money freely between accounts. They’re legally the same person, so what’s the problem? The problem is the corporate veil: the company owns its own assets, not the director. By the time an accountant reviews the books, the director’s loan account has grown to a figure that’s either difficult to repay or creates a taxable event if left unaddressed.

The second pattern is super neglect. Directors who pay themselves dividends only often go years without super contributions. There’s no employer obligation to pay super on dividends, so unless the director makes personal voluntary contributions, their fund sits idle. The compounding cost of even a few missed years is significant.

The third pattern: directors on too-high a salary early in the business’s life, eating into cash flow that should be staying in the company. A salary that made sense when projected revenue was higher can strangle a business that’s growing more slowly than expected. Build in a review clause so you can adjust down without drama.

The fourth: forgetting about Payday Super. From 1 July 2026, super contributions must reach the employee’s fund within seven business days of each pay run, replacing the existing quarterly system. If you’re on payroll, your super processing will need to change. Check that your payroll software supports this before 1 July 2026.

What documentation do you need?

Whatever method you choose, the paperwork matters. “Problems usually happen when money moves but the paperwork doesn’t,” as any accountant will tell you. Here’s the minimum documentation for each method:

For salary: PAYG registration with the ATO, STP reports submitted after each pay run, super contribution receipts, and payslips. For director’s fees: a shareholder or board resolution authorising the fees (see section 202A of the Corporations Act), and if you want the fee arrangement formalised long-term, a Director’s Service Agreement is worth considering. For dividends: a directors’ resolution to pay the dividend, a dividend statement issued to each shareholder, and confirmation that the solvency test under section 254T has been met.

If you’re using a combination of methods, make sure the company’s financial statements clearly separate each type of payment. Your accountant will need clean records at year-end to prepare the company tax return and your personal return correctly.

Frequently asked questions

Can I pay myself a salary as the only director of a company?

Yes. A sole director can pay themselves a salary, provided the company is registered for PAYG withholding and the salary is processed through payroll with STP reporting. There’s no requirement for a second person to authorise it. You’ll also need to pay yourself 12% super on ordinary time earnings, as the super guarantee applies to directors just like regular employees.

Do I have to pay myself super as a director?

If you pay yourself a salary or director’s fees, yes: 12% super on ordinary time earnings is compulsory under the Super Guarantee for 2025-26. If you only receive dividends, there’s no mandatory super contribution from the company, but you may want to make personal contributions to your fund to avoid gaps in your retirement savings.

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

A salary is paid for your operational work inside the business (e.g., as the CEO or operations manager). Director’s fees are paid specifically for your governance duties as a director: attending board meetings, providing oversight, making strategic decisions. Both attract PAYG and super, but fees must be authorised under the company constitution or a shareholder resolution. A director can receive both if they perform both roles.

What is a Division 7A loan and why does it matter?

A Division 7A loan arises when a private company lends money to a shareholder or associate without a complying loan agreement, or when the loan is not repaid before the company’s tax return due date. The ATO treats the unpaid amount as an unfranked dividend: taxable income in your hands, without any franking credit offset. Repay it before the due date or formalise it under a Division 7A loan agreement to avoid this outcome.

Are dividends better than salary for tax purposes?

It depends on your marginal tax rate relative to the 25% company tax rate. If your personal marginal rate is below 25%, fully franked dividends can result in a tax refund from the ATO. If your rate is higher, you’ll pay additional tax, but franking credits still reduce the overall tax burden compared to receiving the same amount as unfranked income. Most advisors recommend a mix: salary for base income and super, dividends to extract additional profit tax-efficiently at year-end.

Can I change how I pay myself once I’ve set a structure?

Yes, but timing and documentation matter. Changing from salary to dividends mid-year requires the company to have sufficient after-tax profit and a formal resolution. Changing from a high salary to a lower salary can also affect PAYG obligations and super that have already been withheld. Get advice from an accountant before making significant changes, particularly mid-financial year.

What happens to Payday Super and director payroll from 1 July 2026?

From 1 July 2026, employers must pay super contributions within seven business days of each pay run, replacing the current quarterly payment system. If you pay yourself a salary, your payroll software will need to support this. The quarterly system applies for the final time to payments made up to 30 June 2026, with the Q4 2025-26 payment due 28 July 2026.

What is the most tax-efficient way to pay yourself as a director in Australia?

For most profitable companies, the most tax-efficient structure is a salary set at or below the 32.5% marginal rate threshold, combined with fully franked dividends from remaining after-tax profits. The salary is deductible for the company and keeps your super funded. Franked dividends carry credits for the 25% corporate tax already paid, reducing the additional personal tax you owe. The optimal split changes year to year based on profitability and your personal income, so model it with an accountant before the end of each financial year.

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

No. A company director is not self-employed. Your company is a separate legal entity, which means you are an officer of the company rather than a sole trader running your own business. If you pay yourself a salary, you are an employee of the company for tax purposes: PAYG and super apply just as they would for any other employee. Self-employment applies to sole traders and some contractors, who pay tax on business profits personally. If you operate through a company and draw a salary, you are a director-employee, not self-employed.

Sorting out how you pay yourself is one of those things most founders put off until there’s a problem. Don’t. The decisions you make in year one , whether to set up proper payroll, how to document withdrawals, when to start paying dividends , shape your tax position for years to come. You’re not behind if you haven’t sorted this yet. It’s fixable. The key is to do it before the ATO asks the questions instead of after.

If you want a second set of eyes on your structure, a company lawyer or Lawpath accountant can review what you have in place and flag anything that needs tidying before your next tax return. Most directors find one conversation is all it takes to get clarity.