How to Pay Yourself: Sole Trader Drawings vs Company Wages
As a sole trader you pay yourself by taking drawings out of business profit, and you're taxed on the whole net profit whether you draw it or not; a company pays you through PAYG wages, franked dividends or a documented loan, and every dollar that crosses from the company to you has a tax consequence. The mechanics differ, but the goal is the same: a predictable owner income that leaves enough behind for tax, super and the business itself. Here's how each route works, how much to set aside, and worked examples at $80,000 and $150,000 profit.
Sole trader: drawings, not wages
What a drawing actually is
You and your sole trader business are the same legal person, so you can't employ yourself. When you move money from the business account to your personal account, that's a drawing. It isn't a wage, so there's no PAYG withholding, no payslip and no super guarantee. And it isn't a business expense, so it doesn't reduce your profit.
If your business made $80,000 net profit and you drew $60,000 to live on, your taxable income is still $80,000. The $20,000 left in the business account is taxed too.
In your accounting software, drawings go to an equity or drawings account, never to wages or an expense line, or both your P&L and your tax return will be wrong. Our P&L guide explains where owner drawings sit and why profit isn't the same as cash.
How the tax works
Net profit (business income minus deductible expenses) goes on your individual tax return, is added to any other income you have and is taxed at ordinary resident rates plus the 2% Medicare levy. Sole traders with aggregated turnover under $5 million also get the small business income tax offset: 16% of the tax on your business income, capped at $1,000 a year. The ATO applies it automatically.
Resident rates for 2026-27 (as at September 2026):
| Taxable income | Tax on this income |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 15c for each $1 over $18,200 |
| $45,001 – $135,000 | $4,020 plus 30c for each $1 over $45,000 |
| $135,001 – $190,000 | $31,020 plus 37c for each $1 over $135,000 |
| $190,001 and over | $51,370 plus 45c for each $1 over $190,000 |
The tax-free threshold applies once across all your income, so if you also have a job the business profit lands on top at your marginal rate. For rates, offsets and what you can claim in detail, see our sole trader tax guide.
How much to set aside
Nobody withholds tax from drawings, so move a fixed percentage of every drawing into a separate savings account you don't touch. Rough guide for a sole trader with no other income, 2026-27 rates, including Medicare levy and after the $1,000 offset:
| Net profit | Approximate tax | Set aside |
|---|---|---|
| $50,000 | $5,600 | 11% |
| $80,000 | $15,100 | 19% |
| $120,000 | $27,900 | 23% |
| $150,000 | $38,600 | 26% |
Round up, not down, add HELP repayments if you have a study debt, and if you're GST registered remember that 1/11th of GST-inclusive sales is never yours either.
After your first profitable year the ATO will usually put you on PAYG instalments, quarterly prepayments of the coming year's tax. You enter automatically once your latest return shows $4,000 or more of business and investment income and $1,000 or more of tax payable. Instalments are based on last year, so keep setting money aside if this year is bigger.
Super for yourself
Nobody pays super for a sole trader, but personal contributions are deductible up to the concessional cap of $32,500 for 2026-27 (as at September 2026), provided you give your fund a notice of intent before you lodge. The fund taxes the contribution at 15% instead of your marginal rate.
Company: wages, dividends and the Division 7A trap
Once you run a Pty Ltd, the company's money is not your money. There are three legitimate ways to get it out and one expensive way to get it wrong. Our company structure guide covers set-up and running costs.
Route 1: PAYG wages
The company registers for PAYG withholding, puts you on payroll, withholds tax using the ATO tax tables and pays it over through the BAS. Wages are reported through Single Touch Payroll; employers with 19 or fewer payees can report "closely held payees" (you, as director or shareholder) quarterly rather than every payday.
Your salary is a deductible expense for the company, so profit paid out as wages is taxed once, at your marginal rate, never at 25%. The company must also pay 12% super guarantee on your wages, and since 1 July 2026 that contribution has to reach your fund within 7 business days of each payday under payday super. Check whether your state's workers compensation scheme requires cover for a working director; several do.
Route 2: franked dividends
Profit the company keeps is taxed at 25% for most small businesses (aggregated turnover under $50 million, no more than 80% passive income). After-tax profit can be paid to shareholders as a dividend with a franking credit for the company tax already paid. If the company earns $100, pays $25 tax and pays you the $75 fully franked, you declare $100 of income with a $25 credit. Above a 25% marginal rate you pay the top-up; below it, the excess credit reduces your other tax or comes back as a refund.
Dividends can only be paid out of profits, need a directors' resolution and a dividend statement, and don't attract super. Their advantage is timing: profit can sit in the company at 25% until you choose to take it out.
Route 3: a documented loan (and the Division 7A trap)
If money leaves the company for you and it isn't wages or a declared dividend, it's a loan. Division 7A treats loans, payments and forgiven debts to shareholders or their associates (your spouse, your kids, your family trust) as an unfranked dividend, taxed at your full marginal rate with no credit for the 25% the company paid. It catches the company paying your personal credit card as much as the "sort it out at year-end" transfers.
There are two ways out. Repay the money before the company's tax return lodgment day for that year, or put it on a written complying loan agreement by that date: interest at least the ATO benchmark rate (8.77% for 2026-27, as at September 2026), a maximum term of 7 years unsecured or 25 years if secured by a registered mortgage over real property, and minimum yearly repayments made by 30 June.
The practical rule: set up payroll before you take a cent, and never use the company account as your wallet.
Super and the PSI check
Super guarantee on your wages is compulsory, and the company can contribute more on your behalf up to the same $32,500 concessional cap; both are deductible to the company. One warning: if you're really a contractor selling your own labour, so that more than half of a contract's income is for your personal skills or effort, the personal services income rules can attribute that income to you personally regardless of the company. Run the ATO's PSI decision tool before you build a strategy on retained profit.
Worked examples: $80,000 and $150,000 profit
Assumptions: 2026-27 resident rates, 2% Medicare levy, no other income, no HELP debt or Medicare levy surcharge, figures rounded. "Profit" means what the business earned before paying you anything.
$80,000 profit
| Sole trader | Company (all paid out as wages) | |
|---|---|---|
| Owner pay | Drawings from $80,000 profit | $71,400 salary + $8,570 super |
| Personal tax + Medicare | $16,120 less $1,000 offset = $15,120 | $13,370 |
| Company tax | – | $0 (no profit left) |
| Cash in hand | $64,880 | $58,030 |
| Super contributed | Nil unless you choose to | $8,570 |
| Extra running costs | – | Roughly $2,000–$3,500 a year |
The company owner has $6,850 less cash but $8,570 in super, so before running costs it's a wash. A sole trader who put the same $8,570 into super would finish about $1,000 ahead thanks to the small business income tax offset. At this level a company is a liability or credibility decision, not a tax one.
$150,000 profit
| Sole trader | Company ($100,000 salary, retain the rest) | |
|---|---|---|
| Owner pay | Drawings from $150,000 profit | $100,000 salary + $12,000 super |
| Personal tax + Medicare | $39,570 less $1,000 offset = $38,570 | $22,520 |
| Company tax | – | 25% of $38,000 = $9,500 |
| Total tax this year | $38,570 | $32,020 |
| Cash in hand | $111,430 | $77,480 |
| Super contributed | Nil unless you choose to | $12,000 |
| Left in company after tax | – | $28,500 |
The company saves about $6,550 of tax this year, but only because $28,500 is still inside the company and $12,000 is in super. Pay the $28,500 out as a fully franked dividend on top of the $100,000 salary and the top-up tax is roughly $2,870, taking total tax on the $150,000 to about $34,890. A sole trader who made the same $12,000 deductible super contribution would pay about $33,890. Take everything out and the two structures cost almost the same; the company's running costs tip the balance back.
Where the company genuinely wins is profit you can leave in it year after year at 25%, or dividends to a spouse shareholder on a lower income (for a genuine business, and not where PSI rules apply). Our sole trader to company guide works through when that crossover arrives.
Setting a sustainable owner pay
If your income lurches between feast and famine, you're running the business from the bank balance. A steadier approach:
- Set the number from the P&L, not the account balance. Take last year's net profit (or a conservative forecast), subtract tax at the percentages above and a buffer for slow months, and divide what's left into a fixed fortnightly or monthly amount.
- Run three accounts. Trading, tax (fed its percentage every time money comes in) and personal (paid the fixed amount). Sole traders do this by transfer; company owners through payroll.
- Benchmark against a real salary. If the business can't pay what you'd pay someone else to do your job, you have a pricing or cost problem, and a bigger drawing won't fix it.
- Review quarterly, when the BAS is done. Adjust the fixed amount for the next quarter rather than chasing every good week.
- Company owners: set the salary once a year. Agree it with your accountant before 1 July so payroll, super and withholding run on autopilot, and declare any year-end dividend deliberately rather than drifting into a Division 7A loan.
Key takeaways
- Sole trader drawings aren't wages and aren't deductible: you pay tax on the full net profit at individual rates plus 2% Medicare levy, less a small business income tax offset of up to $1,000.
- Set aside roughly 15%–30% of profit for tax (about 19% at $80,000 and 26% at $150,000 in 2026-27), plus GST if registered, and expect PAYG instalments after your first profitable year.
- A company pays you through PAYG wages (with 12% super, due within 7 business days of payday), franked dividends from after-tax profit, or a written complying loan. Nothing else.
- Undocumented transfers out of a company are Division 7A loans; unfixed by lodgment day, they're taxed as unfranked dividends at your full marginal rate.
- At $80,000 the company saves nothing; at $150,000 it saves about $6,500 only while $28,500 stays in the company.
- Pay yourself a fixed amount worked out from the P&L, feed a separate tax account automatically, and review it every quarter.
Where to get help
- ATO: Business structures – key tax obligations – how sole traders and companies are taxed.
- ATO: Division 7A calculator and decision tool – check whether a loan is caught and work out minimum repayments.
- ATO: Small business income tax offset calculator – estimate your offset as a sole trader.
- ATO: Personal services income – the PSI decision tool.
- Moneysmart: Super for self-employed people – making and claiming personal super contributions.
- A registered tax agent or accountant (check the Tax Practitioners Board register) for your salary and dividend mix, Division 7A agreements and PSI.
Frequently asked questions
Can a sole trader pay themselves a wage?
No. A sole trader and the business are the same legal person, so you can't employ yourself. Money you take out is a drawing: it isn't a wage, it isn't tax deductible, and there's no PAYG withholding or super guarantee on it. You're taxed on the business's whole net profit for the year, whether you drew it out or left it in the account.
How much tax should a sole trader set aside?
Roughly 15% to 30% of net profit, depending on how much you earn. At 2026-27 rates a sole trader with no other income pays about $5,600 on $50,000 profit (11%), $15,100 on $80,000 (19%), $27,900 on $120,000 (23%) and $38,600 on $150,000 (26%), including the Medicare levy and after the small business income tax offset. If you're GST registered, 1/11th of your GST-inclusive sales is separate again and never yours to spend.
How do I pay myself from my Pty Ltd company?
Through one of three legitimate routes: PAYG wages (the company registers for PAYG withholding, puts you on payroll, withholds tax and pays 12% super), franked dividends paid out of after-tax profits, or a written complying loan under Division 7A. Simply transferring money from the company account to yourself isn't a fourth option; the ATO treats it as a loan and, if it isn't fixed by the company's tax return lodgment day, as an unfranked dividend taxed at your full marginal rate.
What is Division 7A in simple terms?
Division 7A is the tax rule that stops company owners taking money out of their company tax-free by calling it a 'loan'. If a private company lends to, pays for or forgives a debt of a shareholder or their associate, the amount is treated as an unfranked dividend unless it's repaid or put on a written complying loan agreement (benchmark interest of 8.77% for 2026-27, maximum 7 years unsecured, minimum yearly repayments) before the company's return is lodged.
Is it better to pay yourself a salary or dividends from your company?
For most small company owners it's a mix: a regular salary that covers living costs and generates super, then a franked dividend after year-end if there's profit left over. Salary is deductible to the company and taxed once at your marginal rate; dividends come from profit already taxed at 25%, with franking credits so the total tax ends up close to your marginal rate anyway. The real saving only appears on profit you leave in the company, so the right split depends on how much you need to live on.
General information only. This guide doesn't take your personal or business circumstances into account and isn't financial, legal or tax advice. Rates and thresholds change — check the official sources linked in this guide and get qualified advice where your circumstances require it.