Set aside a percentage of your earnings in a separate bank account throughout the year ready for your tax bill.
As a small business owner, it’s important to pay yourself a regular wage – and it’s just as important to make sure you pay the right amounts of tax and super too.
Here’s your quick-start guide to paying yourself in your business.
Step 1: Start with your business structure
The way you pay yourself depends on the structure of your business. We have outlined the general approach for paying yourself under common business structures.
Sole trader
You can pay yourself by making personal withdrawals from the business. All these withdrawals are counted as part of your profit, which you’ll be taxed on at the end of the financial year. With this in mind, ensure you have money available to pay your taxes when they are due.
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Partnership
Partners pay themselves in the same way as a sole trader, by withdrawing cash. The payment of a salary or wages to a partner is considered a distribution of profit, so you need to make sure you set aside tax on your share of the partnership’s income to pay at the end of the financial year.
Company or trust
You could have a range of options including:
- Paying yourself Director’s fees
- Paying yourself as an employee of your company
- Paying yourself dividends as a way of distributing your business profits by paying shareholders, which can include you.
If you are running a company or trust, you’ll need to pay tax and super and report these payments using Single Touch Payroll (STP) and on your business activity statement (BAS). To work out which of these options is best for you, speak with your accountant to explore the most tax effective options for your situation. For example, in the 2023/24 financial year, you may be able to use the set company tax rate of 25 per cent for part of your income over a certain threshold, rather than a higher income tax rate.
It’s also important to understand the implications of using your business money for personal expenses, If your business operates under a company or trust structure.
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Tax laws can be complex, so it’s worth speaking with a licensed tax advisor or accountant and creating a plan to manage your cash flow so you meet your needs and obligations.
Step 2: Know your other obligations
Paying tax is part of being in business – and it’s important to understand your tax obligations to avoid any nasty surprises such as an unexpected tax bill.
With super, regular payments could be compulsory or optional, depending on your business structure. It’s important to know when you have to pay super to avoid any penalties in future. In general:
- If you’re a sole trader or in a partnership, paying your own super is optional but could have tax benefits and be worth considering as part of saving for your retirement.
- If your business is set up as a company or trust, you need to pay what’s known as ‘Superannuation Guarantee’ payments, which is a percentage of your wage (set by the Australian Government and currently 11 per cent) which you need to arrange to be paid directly into your super account.
Again, speak with a tax professional to make sure you are meeting your tax and super obligations.
Step 3: Set up your payments
Once you know your payment structure and understand your obligations in terms of tax and super, you can set up your payments. You might like to:
- Choose to pay yourself a weekly, fortnightly or monthly wage depending on what suits your situation.
- Use an online Australian tax calculator (updated for the relevant financial year) or speak with an accountant or bookkeeper to plan the right amounts for each payment.
- Create a cashflow plan to make sure your set aside the right amounts to be paid as tax or super when needed. This could involve setting up a separate business bank account to keep this money aside until you need it.
If you’re concerned about cashflow or even thinking of giving yourself a bonus or pay rise, speak with your accountant to work out the best options to suit your business.
Find out more
- If you’d like to learn more about the financial side of running a business, book your place in one of our financial management workshops.
- You might also like to explore the Finance section of our website for information on tax requirements, tax reporting requirements and other topics.
- Learn about choosing an accountant.
- Make sure you are up to date on Single Touch Payroll rules.
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