Extracting funds from your company involves more than simply reaching into the business account.

The Australian Taxation Office (ATO) keeps a watchful eye on how business owners access their company money, and different methods come with distinct tax implications.

Proper planning can help you minimise your tax burden while staying completely compliant with regulations.

This guide examines the approved methods for company owners to withdraw funds, highlighting the pros, cons and compliance requirements of each approach.

Understanding Your Company as a Separate Legal Entity

The Critical Distinction Between Personal and Company Funds

When you establish a Proprietary Limited Company (PTY LTD), the government no longer views your business as an extension of yourself.

Many new business owners mistakenly treat their company accounts as personal ATMs, failing to recognise that companies operate as separate legal entities with their own tax obligations and compliance requirements.

This fundamental misconception can lead to serious financial consequences, including potential breaches of what’s known as “Division 7A” regulations and unexpected tax liabilities.

The ATO’s Scrutiny of Company Withdrawals

The ATO has intensified its focus on improper money withdrawals by company owners in recent years1.

The regulator actively scrutinises transactions between private companies and their shareholders, particularly loans where formal agreements aren’t in place or where there appears to be no genuine intention to repay borrowed funds7.

Understanding the legal pathways for accessing company money has never been more important for maintaining compliance and avoiding penalties.

Withdrawal Option 1: Salary, Wages and Director’s Fees

How the Salary Method Works

The most straightforward approach to accessing company funds involves paying yourself as an employee or director of the business1.

This method allows you to establish a regular income stream while clearly distinguishing between personal and company finances. You can list yourself and eligible family members who work in the business as company employees, providing a legitimate pathway to withdraw funds regularly.

This method is a tax deductible expense for the company, thus reducing the taxable profits of the company and minimising the it’s tax liability.

Tax Implications of the Salary Method

When paying yourself a salary or director’s fees, you must lodge payments with the ATO through the Single Touch Payroll (STP) system, requiring STP-compliant software such as Xero1.

These wages need reporting in your Business Activity Statement (BAS), with Pay As You Go Withheld (PAYGW) amounts directed to the ATO through BAS payments.

The company receives a tax deduction for these payments, while you pay personal income tax at your marginal rate. In addition, the company pays you superannuation on your salary.

Strategic Salary Planning

The amount you pay yourself deserves careful consideration, particularly regarding tax thresholds. At approximately $130,000, the marginal income tax rate for individuals exceeds the corporate tax rate of 25%.

Consequently, every dollar you pay yourself above this threshold faces higher taxation in your personal return compared to leaving those funds in the company.

This creates an opportunity for strategic planning, potentially using a combination of salary and other withdrawal methods.

Option 2: Dividend Distributions

How Dividends Work

Dividends represent distributions of company profits to shareholders. As a company owner, you can receive dividends if you hold shares with dividend entitlements. This method directly shares the company’s financial success with its owners through formal profit distributions.

This method is not a tax deductible expense for the company. A dividend is paid with after company tax profits/cashflow. It does not help the company in additional tax deductions to minimise it’s taxable income.

Types of Dividends and Their Tax Treatment

Dividends come in two primary forms: franked and unfranked. Franked dividends provide a more tax-effective way of receiving company profits, potentially reducing the individual shareholder’s tax liability through imputation credits that acknowledge tax already paid at the company level.

Conversely, unfranked dividends require shareholders to pay tax on the entire amount without credit for company-level taxation.

Superannuation Considerations with Dividends

Unlike salary payments, the company doesn’t need to pay superannuation on dividends distributed to shareholders6.

This can represent a significant cost saving for the business compared to the salary method, though it means owners must independently plan for retirement contributions if they rely primarily on dividend income.

Option 3: Company Loans

Understanding Division 7A Implications

Company loans trigger the consideration of Division 7A of the Income Tax Assessment Act which serves as an anti-avoidance measure designed to prevent shareholders from extracting wealth from companies through disguised loans that effectively function as dividends.

Introduced in 1997 and subsequently modified, these provisions represent some of the most complex tax laws Australian business owners must navigate.

Complying Loan Requirements

To withdraw funds as a loan without triggering Division 7A provisions, the arrangement must either be repaid before the company tax return is due or lodged (whichever comes first), or comply with specific requirements7.

These include having a signed written agreement, charging interest at least equal to the Reserve Bank’s benchmark rate, and setting a loan term not exceeding seven years (or up to 25 years if secured by registered mortgage over real property).

The Recent Bendel Decision and Its Implications

A significant development occurred in February 2025 when the Full Federal Court handed down the Bendel decision, rejecting many of the ATO’s long-standing interpretations regarding Division 7A. Specifically, the Court ruled that an unpaid present entitlement (UPE) resulting from a trust allocating income to a corporate beneficiary does not constitute a “loan” for Division 7A purposes.

This represents a major shift in the Australian tax landscape, though the ATO may seek special leave to appeal to the High Court. However, the ATO is likely to repeal the decision so it is recommended the same rules currently apply of Division 7a loans on UPEs. 

Practical Considerations for Business Owners

Record-Keeping Requirements

Regardless of which method you choose, proper documentation remains absolutely crucial. Maintain detailed records of all transactions between yourself and your company, including formal agreements for loans, dividend declarations, and employment arrangements.

Comprehensive record-keeping provides your best defence against potential ATO scrutiny.

Planning the Timing of Withdrawals

Strategic timing of fund withdrawals can substantially impact your tax position. For example, with Division 7A loans, timing repayments or establishing complying loan agreements before lodgement deadlines can help avoid deemed dividend treatment.

Similarly, planning dividend declarations around your personal income situation may optimise your overall tax outcomes.

Combining Different Methods for Optimal Results

Many business owners achieve the best results by thoughtfully combining different withdrawal methods rather than relying exclusively on one approach.

For instance, paying yourself a salary up to the point where marginal tax rates make it less advantageous, then using franked dividends for additional income needs, might represent an effective strategy depending on your specific circumstances.

Conclusion

Taking money out of your company involves navigating a complex web of tax implications and compliance requirements.

The three primary methods—salary/wages, dividends, and compliant loans—each offer distinct advantages and considerations. The optimal approach typically depends on your personal financial situation, the company’s financial position, and your longer-term objectives.

We highly recommend you speak to one of our experienced accountants before implementing any withdrawal strategy. Tax legislation continually evolves, as evidenced by recent court decisions challenging long-standing ATO interpretations.

Professional guidance ensures your approach aligns with current regulations while maximising financial efficiency.

Remember that the goal extends beyond simply accessing company funds—it’s about doing so in a manner that supports both personal financial health and business sustainability while maintaining comprehensive compliance with Australian tax law.