The year is winding down, but December is the ideal time to check if your pay structure still makes sense.
Draw too much, and you risk tax headaches or tight cash flow. Draw too little, and your family or future investment plans may suffer.
Reviewing your remuneration before Christmas means you can head into 2026 with a clear, deliberate plan for how much to pay yourself as a business owner.
VLL Partners brings decades of experience helping business owners in and around Sydney’s North Shore to balance salary, cash flow, and compliance. This guide walks through the key decisions so you can avoid the common traps that catch out directors each year.
Before you think about dividends or distributions, start with the basics: what would you pay someone else to do your job? That’s your market-rate salary.
A realistic business owner’s salary:
In Sydney, many established business owners pay themselves in the $215,000–$245,000 range, but the right amount depends on your industry, business size, profit, and family commitments.
For 2025–26, income tax thresholds are $45,000, $135,000 and $190,000. Owners often target salaries just below the next bracket, e.g. $135,000 or $190,000, to optimise tax.
As of the time of publication, the super guarantee rate is 12% of ordinary time earnings. That means higher compulsory super contributions – and a good opportunity to think about whether you’re making the most of concessional contribution limits for retirement.
Sarah, a Sydney business owner, could set her 2026 salary at $135,000, keeping her in the 30% tax band. With VLL Partners’ guidance, Sarah could ensure her super fund contributions are maximised within the caps, giving her family more security and building long-term wealth.
Once your salary is in place, the next question most owners ask is: “How much extra can I safely take out this year?”
That’s where dividends come in – but only if the business is genuinely strong enough.
Before you declare a dividend, make sure you can say “yes” to the following:
If those boxes are ticked, dividends can then be linked to actual profit, not gut feel.
A simple dividend policy stops last-minute decisions based on “what’s in the bank today”. It might say, for example:
“If net profit exceeds budget by $X and our buffer is intact, up to Y% of the surplus can be paid as dividends.”
When dividends are paid from company profits, they usually come with franking credits – a credit for company tax already paid at 25–30% for most SMEs. These credits reduce the extra tax you pay personally on that dividend.
Once Sarah’s business is stable and her buffer is in place, she could receive a $40,000 franked dividend. The attached franking credit reduces the extra tax she pays, making this a tax-effective way to share in her company’s profit.
A common question from company directors is: “I need cash to cover Christmas. Can I transfer money from the company account?”
Paying yourself from a company is possible – but if done incorrectly, it can trigger Division 7A, which is the ATO rule that treats certain loans and drawings from companies as taxable dividends.
To stay out of trouble:
VLL Partners helps clients spot and fix Division 7A issues early by reviewing director loan accounts and drawings before they become a problem. A December review meeting is a good way to tidy things up before the new year.
Another question we hear a lot is: “Does it matter whether I use a company or a family trust?”
It does. Your structure determines how you can be paid and how that income is taxed. Many established owners end up using both — a trading company with a family trust as shareholder — so it’s worth understanding the role each one plays.
A company can:
However, informal drawings and unpaid loans can fall into Division 7A, which is why good record-keeping and timely advice are critical.
A trust can:
The ATO closely monitors trust distributions under section 100A, especially where entitlements are ‘recycled’ via undocumented loans or interposed entities, per a recent determination.
Sarah trades through a company that is owned by a family trust. The company pays a franked dividend to the trust. The trust then distributes income to Sarah and her adult children.
If those amounts are simply “recycled” back to Sarah without proper documentation, the ATO could challenge the arrangement. With the right advice, Sarah could structure distributions in a way that is both tax-effective and compliant.
If you pay yourself the wrong way as a company director, you could trigger unexpected tax bills, ATO scrutiny, or even a Division 7A deemed dividend. Knowing the right strategy can help you build wealth and avoid costly missteps.
Start with your personal living needs, then look at what the business can genuinely afford. Salary is often set just below a key tax bracket; dividends are then considered only once tax, super, and cash buffers are covered.
In some cases, problems can be fixed before the company’s tax return is lodged, but the longer you leave it, the fewer options you have. Checking your drawings and loan balances in December gives you time to course correct.
Because it sits halfway through the financial year. You can catch compliance issues, adjust your salary or dividend plan, and ensure your remuneration strategy works for both you and the business before the June rush.
The right mix of salary, super, and dividends can mean:
Want to step into the new year knowing your business owner pay is set up the right way? Book an income review with your accountant or business tax advisor.
