Accounting + Taxation | Business Growth
How to stay compliant and withdraw company funds securely: 3 approved methods
MB+M discuss the legal ways to withdraw money from your company + the tax implications attached
Are you a business owner planning to withdraw company funds?
In recent years, the ATO has been clamping down on improper (and illegal) money withdrawals by company owners. The silver lining is that there are proper ways to do this. However, all 3 methods of withdrawing company funds have tax implications, so we suggest speaking with your accountant before doing anything.
The three ways you can withdraw money from a company are:
- paying yourself wages or director’s fees;
- making loans from your company; and
- paying dividends out of your profits.
Wages or Director’s Fees
When paying wages or director’s fees, you need to lodge payments with the ATO via the Single Touch Payroll (STP) system. This means you need an STP-compliant software such as Xero to handle payroll.
Wages need to be reported to the ATO in your Business Activity Statement (BAS), even for yourself. The Pay As You Go Withheld (PAYGW) part of the wage goes directly to the ATO via the BAS payment. These amounts then reduce tax returns and could even result in a refund for you or your staff.
You have some choice in deciding how much and when to pay yourself, and even how to report this to the ATO. It is important to get qualified advice from an accountant when making these decisions.
Directors’ or Shareholders’ Loans
Sometimes, making a loan from your company feels most appropriate to the circumstances.
You can loan money from your company to yourself or anybody else.
However, unless the loan is repaid before the next company tax return is due or lodged, whichever date comes first, a properly constructed loan agreement needs to be put in place.
This should see the loan repaid within seven years at most, and interest paid to the company for the loan.
Dividends
You could pay yourself a dividend out of your company’s profits.
A dividend can be franked, i.e. come with credits attached for the tax the company has already paid on it. Issuing a franked dividend can be a great way for owners to save on tax.
Dividends can only be franked up to the amount of tax your company has paid. There are also several other rules to follow.
The ATO is looking out for owners who improperly withdraw money from their companies. It is important at this time to ensure you stay within the bounds set by the law when paying yourself or your family.
Book an appointment with one of MB+M’s experts if you require assistance drawing funds from a company in a safe and compliant manner. If you would like to sit down with one of our team, book an appointment or give us a call at (03) 5821 9177.
As a small business owner, having an accountant by your side can help avoid burnout and help make those tough business decisions with a strategic and figures approach. Read our article about how we can help you + your business thrive here.
Published November 2024
The information provided in this article is general in nature only and does not constitute financial advice.