How to Pay Yourself as a Business Owner in Australia (2025-26)

Deciding what to pay yourself is one of the more uncomfortable decisions a business owner makes. Too little, and you are subsidising your own business at the expense of your personal financial stability. Too much and you drain the cash your business needs to operate and grow. Get the structure wrong, and the ATO may treat your drawings as something other than what you intended.

This is not a generic ten-point checklist. It is a practical, Australia-specific guide to the correct methods for each business structure, the actual figures that apply in 2025-26, and the compliance requirements that trip up most small business owners. If you are a sole trader, a company director, or a trust beneficiary, the rules for how you pay yourself differ. Understanding which rules apply to you is the necessary first step.

Two significant changes affect the 2025-26 and 2026-27 planning window: the Super Guarantee rate reached its permanent level of 12% from 1 July 2025, and payday super starts on 1 July 2026, requiring super contributions to be paid with each pay cycle rather than quarterly. Both affect how you structure owner remuneration.

Your Business Structure Determines How You Pay Yourself

The single most important thing to understand is that there is no universal method for paying yourself as a business owner. The correct approach depends entirely on your business structure. Getting this wrong creates compliance problems with the ATO, incorrect tax treatment, and potentially significant penalties.

Sole Trader

As a sole trader, you are the business in the eyes of the law. You do not pay yourself a salary. Instead, you take owner's drawings, withdrawing money from the business bank account as needed. These drawings are not a business expense and are not deductible. At tax time, you pay personal income tax on the entire net profit of your business, whether you withdrew it or left it in the account.

The ATO does not require sole traders to pay the Super Guarantee for themselves. Superannuation is entirely voluntary for sole traders. However, if you engage contractors who are paid mainly for their labour, you may need to pay SG for them at the current 12% rate. See our guide to sole trader tax returns for the full picture.

Company (Pty Ltd)

Running your business through a company structure means the company is a separate legal entity. You can pay yourself in three ways: a salary or wages (subject to PAYG withholding and the 12% Super Guarantee), director fees (also subject to PAYG and super), and dividends (distributions of after-tax company profits, which can be franked to pass on the company's 25% tax credit to shareholders).

Most company directors use a combination of salary and dividends. A salary covers personal living costs and is set at a commercial rate. Dividends are declared at year-end once the annual profit is known, distributing remaining retained earnings in a tax-effective way.

Importantly, any money you take from the company that does not fit these categories, including informal loans, may be caught by Division 7A and treated as an unfranked deemed dividend. The 2025-26 benchmark interest rate for Division 7A loans is 8.37%. A company tax return needs to reflect these arrangements correctly.

Trust

Trusts do not pay beneficiaries a salary. The trustee distributes trust income to beneficiaries each year, and beneficiaries are taxed on their share at their personal marginal rate. If you are the trustee and wish to be remunerated for your services, you can charge a trustee fee, provided it is commercially reasonable and properly documented. Trusts are a common structure for small businesses and family wealth, but recent changes to trust distribution rules have made this more complex.

Partnership

Partners draw their share of the partnership profit as agreed in the partnership deed. These drawings are not wages and are not subject to PAYG. Each partner reports their share of the partnership profit in their individual tax return and pays tax at their personal marginal rate. Partners are not required to pay SG for themselves (though they must pay SG for employees).

2025-26 Key Figures for Business Owners

These are the current verified figures that affect how you pay yourself and structure your owner remuneration for the year ending 30 June 2026.

10 Steps to Setting Your Owner Salary

1. Confirm Your Business Structure and the Payment Rules That Apply

Before setting any figure, confirm which structure you operate through and which of the payment methods described above applies to you. The mistake many new business owners make is treating all business structures the same. A sole trader drawing from profit has no PAYG withholding obligation. A company director who pays themselves a salary has mandatory PAYG and a 12% superannuation obligation. Confusing the two creates problems.

2. Separate Your Personal and Business Finances Completely

Maintain a dedicated business bank account and route all income and expenses through it. This is a fundamental requirement for clean bookkeeping and accurate financial reporting. Without the separation, it is impossible to calculate your actual net profit, and it creates a pattern of mixing funds that the ATO views as a red flag during any review.

3. Calculate Your Actual Monthly Net Profit

Your owner's salary must come from actual profit, not from revenue. Run a monthly profit and loss report from your bookkeeping software. Gross revenue minus all genuine business operating expenses equals your net profit. That net profit is the pool from which your drawings or salary are paid. Taking more than this pool allows is borrowing from the business.

If your net profit is consistently lower than what you need to cover personal living costs, you have a business viability question to answer before a salary question.

4. Benchmark Against Market Rates

For company directors and trust operators, setting an unreasonably low salary to minimise PAYG withholding and super, and extracting the rest as dividends, is a known ATO focus area. The ATO expects a director to be paid commercial-market-rate remuneration for the work they perform. If your business employed someone else to do what you do, what would that cost? That is your benchmark.

Tools like SEEK's salary comparison data and industry salary surveys from your professional association give you a defensible market rate. Document your reasoning.

5. Build Your Tax Obligations Into the Calculation First

As a sole trader, no tax is withheld during the year. You pay your personal income tax via your annual tax return, and the ATO may require PAYG instalments during the year if your income is above certain thresholds. Set aside a percentage of each drawing for your tax liability. A rough starting point is 30% for income in the $45,001 to $135,000 bracket, plus Medicare Levy.

As a company director receiving a salary, your employer (the company) withholds tax via PAYG and remits it to the ATO on your behalf. Ensure your payroll system uses the correct 2025-26 tax tables, which were updated when the second-bracket rate dropped from 16% to 15% on 1 July 2025.

6. Set Your Superannuation Correctly for Your Structure

If you are a company director paying yourself a salary, the company is legally required to pay 12% Super Guarantee on top of your gross salary into your nominated super fund. This is an employer obligation that cannot be reduced or deferred without triggering the Super Guarantee Charge, which carries additional penalties and is not tax-deductible.

If you are a sole trader, superannuation is voluntary. However, voluntary contributions of up to $30,000 per year in 2025-26 (concessional cap) are tax-deductible if you claim them correctly. Contributing at least the equivalent of the SG rate, currently 12%, is a widely recommended benchmark for sole traders planning for retirement. See our SMSF administration services page if you manage your own fund.

7. Register for PAYG Withholding and Use Single Touch Payroll

If you are a company director or employer paying wages, register for PAYG withholding with the ATO before your first pay run. From your first payment, you are required to report payroll information to the ATO via Single Touch Payroll (STP). STP-compliant payroll software submits a report to the ATO each time you run a payroll, including the amounts withheld and super calculated.

Failure to register for PAYG withholding or operate STP-compliant payroll is one of the most common compliance gaps the ATO finds during small business reviews. Set it up before your first payment, not after.

8. Set a Consistent, Documented Pay Schedule

Pay yourself on a fixed schedule: fortnightly or monthly is common for company director salaries. For sole trader drawings, many business owners switch to a regular schedule rather than ad hoc withdrawals. Consistency makes your financial statements cleaner and your cash flow more predictable.

Document every payment. Your bookkeeping records should show each payment as either wages (company), drawings (sole trader), or a distribution (trust/partnership), with amounts, dates, and the relevant withholding and super calculations for company payments.

9. Plan for Payday Super From 1 July 2026

If you are a company director paying yourself a salary, your payroll process from July 2026 will include a super payment per pay run rather than a quarterly lump sum. Ensure your payroll software is updated, and your business's cash flow can accommodate the change. Talk to your accountant now if you currently fund your quarterly super from retained earnings rather than setting it aside each payday.

10. Review Your Structure and Salary at Least Annually

Your circumstances change. Revenue grows, expenses shift, personal needs evolve. A salary that was appropriate at $200,000 with $200,000 in annual revenue needs to be reviewed at $500,000 with $500,000 in annual revenue. A sole trader structure that made sense at startup may no longer be the most efficient at higher profit levels. Our business advisory team reviews owner remuneration as part of annual tax planning for clients at significant business transitions.

The ATO also changes its rules. The trust distribution rules have been tightened in recent years. Division 7A compliance requirements continue to evolve. An annual review with your registered tax agent keeps you up to date and ahead of compliance obligations.

3 Mistakes That Create ATO Problems

1. Mixing Personal and Business Funds

Using a business credit card for personal expenses, drawing cash from the business bank account without recording it, or paying personal bills directly from business revenue are all patterns the ATO treats as serious bookkeeping failures. For company owners, unexplained cash movements between the company and the director's personal account can be reclassified as deemed dividends under Division 7A.

2. Getting Superannuation Wrong

Two common failures: sole traders who hire staff but forget to pay SG for eligible employees, and company directors who treat super as optional or defer it beyond the quarterly deadline. Both create the Super Guarantee Charge, which includes the SG shortfall plus interest (10% per annum) plus an administration fee, and is not deductible. From 1 July 2026, the deadline becomes the payday itself. The margin for error narrows significantly.

3. Division 7A Loan Traps

Company owners who take informal loans from their company, let the company pay personal expenses on their behalf, or leave outstanding balances without a compliant loan agreement face one of the most expensive mistakes in Australian small business tax. If the company's tax return is lodged without the Division 7A arrangement being formalised, the borrowed amount becomes an unfranked deemed dividend in that year, taxable at your personal marginal rate with no franking credit offset. The 2025-26 Division 7A benchmark rate is 8.37%. Any loan agreement must charge at least this rate.

When Should You Start Paying Yourself?

The simple test: can the business afford it after covering all operating costs, taxes, and a working capital buffer? For a new business, this means revenue must be both consistent and sufficient to cover expenses without relying on your drawings to survive a slow month.

Checklist before taking your first owner payment:

• 
  Business has at least one month's operating expenses held in reserve
• 
  Revenue is consistent and covers costs without relying on personal funds
• 
  All employee wages and super obligations are fully paid and current
• 
  Tax obligations (GST, PAYG, income tax instalments) are current
• 
  All business debts are being serviced at the required minimum

If all of the above are true, the business can sustain owner remuneration. If any are not, prioritise those before taking a salary.

How The Kalculators Can Help

Getting owner remuneration right is not just about picking a number. It involves choosing the right structure, setting up payroll correctly, managing super obligations, and reviewing the arrangement as the business grows. Our registered tax agents and business advisers work with small business owners across Adelaide and online on all of these decisions.

We can review your current structure to determine whether it remains the most tax-effective for your circumstances, set up correct payroll and STP reporting for company directors, advise on a salary-versus-dividend split for company owners, and help you prepare for the payday super changes from 1 July 2026.

Call (08) 7480 2593, Monday to Friday, 9:00 AM to 6:00 PM, or visit us at 182 Salisbury Highway, Salisbury; 315 Prospect Road, Blair Athol; or 280 Main South Road, Morphett Vale. Online services are available for clients in Murray Bridge, Woodville, Melrose Park, Port Augusta, Prospect, and Brighton. You can also reach us at info@thekalculators.com.au.