Owner pay, done properly: salary, dividends and the loan account

What was broken

The promoters of a profitable healthcare-services group were drawing income in a way that had grown up organically, without tax planning — an inefficient mix of salary, dividend, and informal drawings that increased their overall tax burden and complicated the company’s books.

What we did

CapEasy reviewed the promoters’ compensation, the company’s profit position, and the applicable corporate and tax law provisions. We redesigned the salary-and-dividend mix, formalised the drawings, and structured promoter remuneration to be tax-efficient while remaining fully compliant.

Where it landed

The promoters reduced their overall tax burden and gained a clear, compliant framework for drawing income and distributing profits. The company’s books became cleaner and easier to plan around.

Three ways to pay yourself from your own company — and one that isn’t a payment

A director-shareholder of an Australian company has the same handful of levers this engagement worked with: a wage through payroll (subject to PAYG withholding and superannuation guarantee like any other employee), a dividend declared out of profits (frankable if the company has paid tax on those profits, so it carries franking credits to the shareholder’s own return), or money taken out of the company informally — a drawing against the director’s loan account. The first two are payments with a tax treatment attached from day one. The third is not a payment at all under tax law; it is a loan from the company to its director, and it stays a loan on the books until it is repaid or formally converted into a wage or a dividend.

The mix matters because the three levers interact: a wage adds to super guarantee and payroll obligations, a dividend’s value to the shareholder depends on how much franking is attached, and an unaddressed loan account balance is the one lever with a hard deadline attached to it — Division 7A.

Division 7A: why an informal drawing has a lodgment-day deadline

Division 7A of Part III of the Income Tax Assessment Act 1936 is the provision that stops a private company’s profits reaching a shareholder or their associate tax-free through a loan, payment or forgiven debt instead of a declared, franked dividend. A director’s loan account that is still in debit — money drawn and not repaid or put under a complying loan agreement — by the day the company’s tax return is due to be lodged is at risk of being treated as an unfranked deemed dividend for tax purposes, taxed in the director’s hands at their marginal rate with no franking credit to soften it.

The fix is not avoiding the loan account — director loan accounts are ordinary and legitimate — it is closing it out properly, every year, before the lodgment deadline: repay the balance, put it under a complying written loan agreement with minimum yearly repayments at the published Division 7A benchmark interest rate, or convert it to a wage or a declared dividend. Whichever route is chosen, it has to happen on paper, not by informal understanding, and it has to happen before the return is lodged — this is the one part of owner remuneration in Australia that runs on a calendar, not on convenience.

The record that makes the mix defensible

ASIC’s guidance to company officeholders is explicit that a director must not have a material personal interest in a company decision without disclosing it, and must put the company’s interests ahead of their own — a director setting their own pay is exactly that situation, and the paper trail is what shows the decision was made properly rather than simply taken. ASIC also requires companies to keep financial records — including loan contracts and bank statements — for at least seven years, which is precisely the reconstruction problem this engagement solved from the other end: an ATO or lender review of a director loan account asks for the same document chain ASIC already expects a company to hold.

The reconstruction method transfers directly: treat the loan account like the salary-and-dividend mix was treated here — reviewed against the actual rules rather than left to grow informally, resolved on paper with the correct instrument for each dollar, and closed out on a schedule instead of discovered at year end. CapEasy’s part in that work is the review, the ledger and the loan-account schedule; the loan agreement itself, the dividend declaration, and anything lodged with the ATO or ASIC are prepared for your registered BAS or tax agent to review and lodge.