How to Pay Yourself from Your Business: Drawings, Wages, Dividends and Distributions

"How should I pay myself?" sounds like a simple question. For a sole trader, it mostly is. For anyone running a company or a trust, it's one of the areas where we at BPAG Accountants find the most avoidable tax problems.

This guide walks through each structure as at October 2026. It's general information. The best mix of wages, dividends and distributions depends on your profit, your family and your plans, so get advice for your numbers.

If you're a sole trader: drawings

As a sole trader, you and the business are the same person. When you transfer money from the business account to your personal account, that's a drawing.

• Drawings are not a deduction for the business.
• Drawings are not taxed when you take them.
• You're taxed on the business's profit, whether you take it out or leave it in.

That last point catches people. If the business makes A$150,000 profit and you only draw A$90,000, you're still taxed on A$150,000.

What to do: once you're in PAYG instalments, the ATO will ask you to prepay tax during the year. Even before then, move a percentage of every receipt into a separate tax account. GST and tax money isn't yours to spend.

You can't pay yourself a "wage" as a sole trader, and you don't pay yourself super guarantee. You can make personal super contributions and may be able to claim a deduction for them, subject to the contribution caps and notice requirements.

If you're in a partnership

Similar to a sole trader. Partners take drawings against their share of profit, and each partner is taxed on their share of the partnership's net income. A partnership agreement should say how profit is shared and what each partner can draw.

If you run a company: three ways to take money out

A company is a separate legal entity. The money in its bank account is the company's, not yours, even if you own every share. There are three proper ways to get it out.

1. Wages or director's fees

The company pays you like an employee.

• It's deductible to the company and taxable to you.
• The company must withhold PAYG from each payment and report it through Single Touch Payroll.
• Super guarantee generally applies. The rate is 12% of qualifying earnings.
• From 1 July 2026, under Payday Super, the ATO says super must be received by your fund within 7 business days after each payday. That replaces quarterly super.

Wages are good for a steady, predictable income, and they count for things like loan applications.

2. Dividends

The company pays tax on its profit first: 25% if it's a base rate entity, otherwise 30%. It can then pay dividends to shareholders out of after-tax profit.

• Dividends aren't deductible to the company.
• You include the dividend plus the franking credit in your income, then get a credit for the company tax already paid.
• If your marginal rate is higher than the company rate, you pay the difference. If it's lower, the excess credit can generally be refunded.

Dividends need to be properly declared, with minutes or resolutions, and recorded. They're paid to shareholders in proportion to their shares (unless the constitution allows different share classes).

3. Loans: Division 7A

If the company lends you money, pays your personal bills, or lets you use its assets, Division 7A can treat that as an unfranked dividend, taxed at your marginal rate with no credit for company tax.

To avoid that, the ATO says the loan generally needs to be repaid, or put under a complying written loan agreement, before the company's lodgment day for the year. A complying loan must:

• have a maximum term of 7 years (or 25 years if fully secured by a registered mortgage over real property worth at least 110% of the loan),
• charge interest at least at the benchmark rate, which is 8.77% for 2026–27, and
• be paid down by a minimum yearly repayment each year by 30 June. A shortfall is treated as a dividend.

The most common way company owners trip Division 7A: paying personal expenses from the business card, or transferring money "to myself" through the year with no plan for how it'll be treated. At year end, the accountant has to decide whether those amounts are wages, dividends or a loan, and the loan option comes with interest and repayments.

If your business is in a trust: distributions

A discretionary trust doesn't usually pay tax itself. Each year, the trustee decides which beneficiaries are entitled to the trust's income, within the trust deed. Each beneficiary is taxed on their share.

Key rules:

• Resolutions by 30 June. Trustees generally need to make a valid distribution resolution by the end of the income year. Check your deed, as some require earlier.
• Entitlement vs payment. Beneficiaries are taxed on what they're entitled to, whether or not the money is paid to them. Unpaid entitlements to a company beneficiary can raise Division 7A issues.
• Section 100A. If a beneficiary is made entitled but someone else really gets the money, and tax reduction was a purpose, section 100A can apply and tax the trustee at the top rate. The ATO's TR 2022/4 and PCG 2022/2 explain its approach.
• Minors. Distributions to beneficiaries under 18 are generally taxed at penalty rates.
• Working in the business. A beneficiary who works in the business can also be paid a wage by the trustee, separate from distributions. Wages are deductible, and PAYG and super rules apply.

Taking money out of a trust account during the year is usually treated as drawing against your expected entitlement. If the distribution doesn't cover what you took, the gap needs to be dealt with.

Wages vs dividends: which is better?

There's no universal answer. Some factors:

Many owner-managers take a reasonable wage and top up with dividends when profit allows. The right mix depends on your marginal rate, the company's rate, whether you want super contributions, and how much you actually need to live on.

Practical rules we give clients

1. Decide in advance how you'll be paid this year: wage, dividends, distributions, or a mix.
2. Pay yourself regularly, the same amount each pay cycle. It makes the business easier to manage and your tax easier to predict.
3. Never pay personal expenses from the business account, or if you do, record them straight away as a loan or drawing.
4. Set up a tax account. Move GST, PAYG and an estimate of income tax into it every week.
5. Check super timing for every wage you pay yourself from 1 July 2026.
6. Review in May, not July, so there's time to put loans under agreement, declare dividends or make trust resolutions.

Recurring revenue makes this a lot easier. When memberships, plans or retainers cover your fixed costs each month, paying yourself a steady wage stops being a gamble. It's a big theme of BPAG director Robert Coorey's book The Subscription Playbook, and our cash flow forecast guide shows how to plan it.

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• whether a subscription model could work for your business
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Frequently asked questions

Written by BPAG Accountants

This guide was written by the tax team at BPAG Accountants, a Sydney accounting firm that helps Australian business owners with tax, structuring, cash flow and business advice. Reviewed by Robert Coorey, a Director at BPAG and author of The Subscription Playbook. Talk to BPAG on 1300 272 422 or at bpag.net.au.