Taking Money Out of Your Company: What You Need to Know

3 December, 2025 · 15 min read

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You run a company and you’ve doing well. Now you want to take some money out of your company for yourself. Hooray! But before you rush off to do it, have a think about how you want to pay yourself, because doing it the wrong way can trigger big tax headaches. Here’s a quick guide to doing it right.

Quick Summary
Why this matters
A quick look at tax credits
What are your main options for putting money in your pocket?
Tips for Making a Division 7A Loan Complying
Check-list for year-end cleanup

Quick Summary

Taking money out of your company is to be expected - how else are you going to get paid? But how you do it matters.

If you treat it like salary – it’s simple but you need payroll systems.
If you treat it like a dividend - you need profit, the correct share class, and formal declaration.
If you treat it like a loan - you need an agreement, payment terms, interest and repayment schedules. You also need to be aware of the timeline.

Why this matters

Even if you own the company, your company’s money isn’t automatically your money.

Think of your company as a separate person with its own bank account. When you take money out of it, the ATO (that’s the Australian Taxation Office) wants to know why - is it:

a wage or salary
a dividend (profit distribution)
a loan you’ll pay back later?

If you just transfer money out without recording what it’s for, the ATO will probably assume you’ve taken company profits for yourself - like paying yourself a bonus - and they’ll tax you on it.

A quick look at tax credits

Before we talk about how you pay yourself from a company, it helps to understand how tax credits work in Australia—especially franking system and Division 7A, which is a set of rules designed to stop company owners from taking money out of the business tax-free.

A company pays tax at the 25% corporate tax rate. But when those profits are later paid to you as a shareholder, they’re treated as dividends and taxed at your personal tax rate (which can be as high as 45% plus medicare levy 2%).

This is where the franking system comes in.

What is the franking system?

Australia uses a system called imputation, which simply means this:
the ATO doesn’t want company profits to be taxed twice—once in the company’s hands and again in yours.

So if a company has already paid tax on its profits, it can pass that tax on to shareholders as franking credits.
When you receive a franked dividend, you also receive those credits, which you can use to reduce your own tax bill.

If you receive an unfranked dividend, it means the company hasn’t paid tax on that profit. In that case, you pay tax on the full amount at your personal marginal rate.

Why this matters

If you take money out of your company the wrong way, the ATO can treat it as a “deemed dividend” under Div7A rules. Typically they don’t come with franking credits - so they end up being fully taxable.

This means:

The money you take from your company will be added to your personal income, and
You may end up paying more tax than if it had been set up properly.

What are your main options for putting money in your pocket?

Below are the three common ways to take money out - with easy pros and cons.

Option 1 - Pay yourself a salary or wage (through payroll/STP)

Pros

Straightforward: you’re treated like an employee.
Tax is withheld and reported automatically via STP/BAS.
Superannuation (SG) is handled as part of payroll.
Great for stable, regular income.

Cons

You need STP-enabled payroll software.
The company must withhold PAYG tax and pay super.
Ongoing admin (or outsource to your accountant).

Best for when:

you’re working in the business and want regular pay, or
the company can manage ongoing payroll and super payments.

Option 2 - Declare a dividend (shareholder distribution)

Pros

If the company has paid tax, dividends can carry franking credits to reduce your personal tax.
Good for one-off profit distributions.
Useful when your company has accumulated franking credits you want to use.

Cons

You need distributable profits to pay dividends.
You must treat all shareholders of the same share class equally.
Requires documentation (dividend statements, minutes) and correct tax reporting.

Best for when:

The company has clear profits and you want to share those profits with shareholders rather than create a loan.
The company has unused franking credits and you want to avoid extra tax on money the company already paid tax on.

An example: you issued yourself $10,000 dividend

If the company already paid $2,500 tax on the profit, you receive a $10,000 dividend with a $2,500 franking credit. You declare $12,500 income but subtract the $2,500 credit from your personal tax bill - preventing double taxation.

⚠️Tax Warning!

Franking credit deficit

If the company gives out too many franking credits, it may need to pay extra tax to top up the franking account.

Franking credit trap

If the corporate tax rate falls (e.g., 27.5% → 25%), some credits from earlier years may become “stuck” because you can only frank dividends at the current lower rate.

Planning ahead helps avoid accidentally wasting credits.

To manage this, consider:

Paying dividends earlier (before a rate drop takes effect) to use up higher-rate credits.
Also, review your personal tax position — if you’re on a lower marginal tax rate, you may receive a refund of franking credits. If your personal tax rate is high, you may prefer that the company retain profits until it can pay fully franked dividends at the higher rate OR until other strategies can unlock trapped credits.
Looking ahead, it’s worth planning for future profits to make sure trapped credits can be used later and checking your company’s base rate entity status each year, as this affects the maximum franking rate you can apply. A base rate entity is generally a company with turnover under $50 million and where no more than 80% of its income is from passive sources such as rent, interest, or dividends.

You can find more information about franking credits on the ATO website.

Option 3 - Take money as a Division 7A loan (formal director loan)

This is when the company “lends” you money. It’s fine — as long as you follow the rules.

Pros

Immediate cashflow without payroll and PAYG withholding.
No immediate tax if the loan is compliant.
You get extra time before the first minimum yearly repayment (MYR).

Cons

Requires a written loan agreement by the company’s lodgment day.
Needs minimum yearly repayments (principal + interest).
Interest must be charged at/above the ATO benchmark rate (8.37% for 2025–26).
If you break the rules, the loan becomes a deemed unfranked dividend — and fully taxable.

Best for when:

You need cash now and the company (and you) are confident you can meet the repayment schedule.
You want to avoid payroll and super in the short term but can commit to formalising the loan and making minimum yearly repayments.
You are okay with more documentation / formal structure, and are comfortable with the idea of it being a loan (not a “free withdrawal”).

You can find more information about a complying Div7A loan on the ATO website.

An example: you withdraw $50,000

Imagine Save Money Pty Ltd lends its shareholder (Ben) $50,000 on 9  May 2022.

If Ben had simply transferred $50,000 from the company to himself without any documentation, loan agreement, or formal payroll/salary/dividend declaration and he has not repaid it back to the company, then:

The money would likely be treated by the Australian Taxation Office (ATO) as an unfranked deemed dividend.

Ben would include the $50,000 in his assessable income, with no franking credits, and could end up paying tax at his individual marginal rate 45% on that amount.

If the company doesn’t have a distributable surplus, this may limit the deemed dividend - but it’s still risky.

Now, compare that to the complying Div7A loan route:

Save Money Pty Ltd and Ben set up a Division 7A complying loan agreement before the company lodges its tax return for the year ended 30 June 2023. The loan follows the required rules: for example, it is unsecured, has a 7‑year term, and charges interest at the ATO benchmark rate.

Here’s what happens next:

Company side:

Each year, the company records the interest Ben pays as income.

That interest is taxed at the company’s rate.

Ben’s side:

Ben must make minimum yearly repayments (MYRs) — covering both principal and interest — by 30 June each year until the loan is fully repaid.

If all MYRs are made, the loan avoids being treated as a deemed dividend.

Whether Ben can deduct the interest depends on how he uses the money (usually deductible if used for income-producing purposes).

Must plan ahead because payments are due every 30 June while the loan is outstanding.

Ben can choose to repay the loan faster than 7 years if he wants.

Ben can make/offset the MYRs by declaring normal dividends with franking credits and wages to himself.

Ben gets the cash immediately but does not pay ‘tax’ on the loan itself right away. Tax is deferred until the company earns interest or if the loan is later converted into a dividend or salary.

*Exact repayments for later years cannot be finalised until the ATO publishes benchmark rates for those years.

⚠️Tax Warning! Section 109R — “Repay and redraw” trap

If you repay a loan just before 30 June but take the money out again straight after, the ATO can ignore the repayment and still treat the loan as unpaid. This can trigger a deemed dividend.

For example, Ben withdraws $50,000 from Save Money Pty Ltd and puts it in his personal home loan offset account to reduce interest throughout the year. Right before 30 June, he transfers the $50,000 back to the company to “repay” his Division 7A loan, only to withdraw the same amount again immediately after year-end.

At first glance, it looks like he made the repayment, but under Section 109R, the ATO can disregard this repayment because it was not a genuine repayment. The loan remains outstanding, and a deemed unfranked dividend may arise, creating an unexpected tax liability.

Tips for Making a Division 7A Loan Complying

Have a Written Loan Agreement: Include loan amount, interest rate (ATO benchmark or higher), terms.
Make Minimum Yearly Repayments (MYRs): Pay principal + interest annually by 30 June. Missing payments can trigger a deemed dividend. Use the ATO Division 7A calculator to work out the correct MYR.
Plan Ahead & Ensure Cashflow: Make sure you can meet repayments each year. Consider both your personal finances and the company’s needs to avoid surprises.
Avoid Repay & Redraw Schemes: Don’t repay and immediately borrow the same funds again — the ATO can disregard this under Section 109R.

Check-list for year-end cleanup

As you approach the end of the financial year (30 June), go through this:

What’s the outstanding director loan balance?
Can you pay yourself a salary or bonus this year?
Do you have enough profit to declare a dividend?
Does your company have unused franking credits?
Do all shareholders hold the same class of shares?
If you’re doing a loan—do you have the written agreement in place and are the yearly repayments happening?
Make a decision before the company lodges its tax return to avoid surprises.

Got questions? Reach out to us via app chat. You can also find more info about Div7A loan on this ATO website.

<< Back to +Taxes

Frequently asked questions

What happens if I miss the lodgment day to put a complying loan agreement in place?

If the loan becomes non‑compliant, the shareholder may be assessed on the full amount as an unfranked dividend, and the company cannot treat it as salary, or a genuine loan, for Division 7A relief. So it’s critical that the loan agreement is in place before or by the company’s lodgement date and meets the other conditions (interest rate, term, repayment schedule).

Can I repay more than the Minimum Yearly Repayment (MYR) and how does that affect future years?

Yes — you can repay more than the required MYR. It reduces the outstanding loan balance, thereby reducing future required repayments.

Does Division 7A apply to loans to non‑resident shareholders or associates?

Yes — Division 7A can apply to loans, payments or benefits to shareholders or their associates, whether resident or non‑resident. The key is the shareholder (or their associate) of the private company, not their residency status. However, non‑residency may introduce additional tax‑treatment or withholding issues, so professional advice is recommended.

Can company‑paid personal credit card balances trigger Division 7A?

Yes — if the company pays personal expenses (for example via a company‑issued credit card used for the shareholder’s personal costs), that may constitute a payment or benefit to the shareholder (or their associate) and could be captured by Division 7A. Unless that payment is treated as salary (with PAYG withholding etc) or declared as a dividend (or a complying loan with required terms), it risks being a deemed dividend.

What happens to Division 7A loans on company liquidation, de-registration, or sale?

If the company is liquidated, deregistered or sold, outstanding loans to shareholders or associates still attract Division 7A risk. On liquidation or de-registration the company’s assets are distributed, outstanding shareholder loans may be considered forgiveness or benefit and treated as a deemed dividend.

What is a complying Div7A loan agreement?

A complying loan agreement must:

• Be in writing before the company’s lodgement day.

• Include a benchmark interest rate for each year (8.37% for 2025-2026).

• Include a maximum term (7 years unsecured, 25 years secured).

• Identify parties and essential loan terms, signed and dated.

You can find more details about the elements of a complying Div7A loan in TD2008/8.

What is a distributable surplus, and how is it calculated?

A distributable surplus is basically the “extra profit” a private company can give to its shareholders (like in loans, payments, or debt forgiveness) without the ATO treating it as a taxable dividend.

If the distributable surplus is zero, it means the company cannot give any extra payments or loans to shareholders without triggering tax.

Example:

Assets: $200,000

Liabilities: $300,000

→ net assets are negative 100,000 → count as 0

Debt forgiven to shareholder: $20,000

Non-commercial loans still owed: $50,000

Paid-up share capital: $10

Calculation:
0 (net assets) + 20,000 (Division 7A) – 50,000 (non-commercial loans) – 10 (share capital) = –30,010→ distributable surplus = 0

Since the result is negative, the distributable surplus is 0. So in this case, the company has no distributable surplus, meaning it cannot issue a dividend.

You can find more detailed information on the ATO website.

Can the Commissioner overlook a breach?

Sometimes yes—especially if it was an honest mistake or beyond the person’s control:

Honest mistakes: A deemed dividend might be ignored if the error was honest or accidental (109RB).

Shortfalls in minimum yearly repayments (MYR): If the recipient couldn’t reasonably control the shortfall, and paying would cause serious hardship, the shortfall may be disregarded (109Q).

Payment difficulties: Extensions may be allowed if someone can’t make the payment due to circumstances beyond their control (109RD).

Debt forgiveness: If forcing repayment would create serious hardship, the forgiven debt isn’t treated as a dividend (109G(4)).