We all know that a high director’s salary is worth all the hours of hard work you put into your company. But if your company has just started, how much should you pay yourself? Will you make a profit to cover the salary you’re expecting? Should you receive a salary during the start-up phase of your company or is it best to reinvest your salary in the company?
As a company director, you need to make sure there is enough money to grow the company while covering costs. But you may also need to draw a salary to cover your personal living expenses. The perfect balancing act.
Before setting your salary you will need to calculate what profit you expect to make. Your salary should be less than the expected profit just in case the company does make the profit you estimated. When calculating the expected profit make sure that you allow enough money to pay all taxes and employee entitlements. If you pay yourself a salary which ends up being more than the profit then you may need to pay some back unless the company has other reserves. If you don’t ensure that the company makes a profit and you incur debts then you will most likely become personally liable for incurring the debts. This is called insolvent trading
How will I pay myself?
You can register yourself as an employee of the company.
If you register yourself as an employee of the company and you pay yourself a regular salary then the company will need to withhold PAYG tax from your salary and remit that tax to the Australian Taxation Office (ATO). This is the most common and efficient method for a director’s salary to be paid.
If you don’t pay yourself a regular salary (due to unpredictable company cash flow), then you can pay yourself through a loan account. Your accountant will then need to work out the PAYG liability each quarter so this can be included in your BAS return.
If you also own the shares in the company then you can pay yourself a dividend from the profits each year. If you can wait until the end of the year to be paid, then you can set the dividend in accordance with the profits. This is the safest method as you can only pay dividends from profits. You will then need to include the dividend you received from the company in your personal income tax return.
We always recommend that you seek professional advice from accountant before If you declare any company dividend.
The team at Australian Company Liquidations can assist you if you are concerned about the solvency of your company. We have friendly and professional consultants ready to assist you now. Our phone lines are open 24/7 so there will always be someone available to speak to you at any given time, so please call us on 1800 731 155 now.