What’s the Best Way to Pay Yourself as a Business Owner?

One of the most common questions we hear from business owners is: “What’s the best way to pay myself?” Unlike employees, who receive wages through payroll, business owners have options — and with choice comes complexity. The right approach depends on your business structure, tax implications, and personal financial goals.

In Australia, the three main methods are salary, dividends, and trust distributions. Each has its own advantages, obligations, and tax consequences.

Option 1: Paying Yourself a Salary

If your business operates through a company or trust, you can pay yourself a wage. This is a deductible expense to the business and is taxed to you at your marginal tax rate.

Pros:

• Regular superannuation contributions via the Superannuation Guarantee.
• PAYG withholding creates tax credits, reducing your year-end tax bill.
• Provides stability, much like being an employee.

Cons:

• The business bears additional costs (super and PAYG), which can affect cash flow.
• Less flexibility compared to other methods.

Option 2: Receiving Dividends

Companies can also pay profits to shareholders as dividends. These are not deductible to the company but are an effective way to distribute retained company profits.

Pros:

• Dividends can include franking credits, giving shareholders credit for tax already paid by the company.
• Flexible timing — dividends can be declared when retained profits exist.
• Can be combined with a salary approach.

Cons:

• Not available to sole traders or trusts.
• Dividends are tied to company profits, so not always predictable.

Option 3: Trust Distributions

If your business operates through a trust (often a family discretionary trust), profits are distributed to beneficiaries annually. The trust itself doesn’t pay tax — instead, the income is taxed in the hands of the beneficiaries.

Pros:

• Flexibility to allocate income to beneficiaries in a tax-effective way.
• Can help manage family wealth and long-term planning.

Cons:

• Trusts can’t retain profits; all income must be distributed annually.
• Profits are taxed at individual marginal tax rates, not concessional company tax rates.

So, What’s Best?

There’s no “one-size-fits-all” answer. The right method depends on your goals, business structure, and cash flow needs. In many cases, a combination of approaches provides the best balance.

If you’re unsure, it’s worth seeking tailored advice to ensure your structure supports both your business growth and personal financial stability.