Companies, Trusts and Paying Yourself

If you've set up a company startup, which we recommend, you can pay yourself in a number of ways:

  1. As an employee
  2. Drawings from the business during the year (as pre-payment of dividends)


Paying Yourself As An Employee
Within the company, you would process a payroll payment to yourselves. As a company, you would withhold tax (to pay yourselves the net amount) and record superannuation obligations. As part of your quarterly Business Activity Statement (BAS) the company needs to pay the ATO the tax withheld from your pay. Once a quarter the company will also need to pay to your nominated super fund.
As an employer, you need to register for PAYG with the ATO, have a default super fund for the company, and register within your states workers compensation system.

Drawings from the business
As the shareholder(s) of the company is your Trust, other cash taken out of the business is effectively by "declaring" a dividend payment from the Company to the Trust from the company profits. It is the Trust that determines distribution to its beneficiaries, namely yourself(s). We can record all this for you at the end of the year through your company, trust and individual tax returns - during the year any cash taken out by yourself(s) is simply recorded as Owners Drawings to be "settled up" at the end of the year. And you can simply transfer direct from the company bank account to your personal account. It is important to note that any cash you receive personally will be treated as taxable income and you will have to include this in your individual tax return and pay tax on it (depending on any other income/expenses you have). You should ensure that you reserve any cash necessary for any tax payable.

Repaying Loans

Note that if you as a founder have provided any loans to the business when it was first starting out, if you (later) need to draw money back out of the business, you should first be doing this as effectively paying yourself your loan back.  As such, this is not income that needs to be declared. See more on Loans to your Startup.

Reimbursing Expenses

If you as a founder have incurred expenses on the company's behalf and these are still outstanding (ie you have not paid yourself back) then if you (later) need to draw money back out of the business, you should also first be paying back (ie reimbursing) yourself for the expenses you have incurred. Again, this is not income that needs to be declared.  See more on Expenses incurred personally on behalf of your startup.

 

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Some startups like the idea of paying themselves as a contractor to their own startup ... at least when first starting out.  Only problem with this is that if you're earning all/most of your income from (your own) startup employer, you can run into something called Personal Services Income (PSI) regime where, regardless of what contract/agreement you may have in place, the ATO can deem you to effectively be an employee ... which means that costs like superannuation, workcover etc can be retrospectively applicable - on top the contractor invoice!  See more on Personal Services Income (PSI).

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