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How to pay yourself as a business owner

How to pay yourself as a business owner

Here's what to think about when paying wages, tax and superannuation for your business.

Whether you started your business to be your primary source of income or to make more money on the side, it can be difficult to work out how much to pay yourself.

You need to factor in your living expenses, superannuation, sick leave and holiday pay, while setting fair market rates for your product or service.

You also need to consider how the amount you pay yourself now may impact on the long-term profitability of your business.

Here are some things to consider:

Making a plan

Your business financial plan can help you forecast how much you can afford to pay yourself. Include your wage or salary in your business plan and you can start as you mean to go on.

When you’re starting out, you may choose to pay yourself enough to get by so you can redirect more revenue or profit into growing your business. This may help you to grow faster and be worth more over time. 

Alternatively, paying yourself a market rate can help you to structure your business in a sustainable way and make sure you have enough to live comfortably, perhaps reducing upfront financial stress.

Making the most of your tax deductions

When you’re a sole trader, your net profit is considered an extension of any existing income and gets taxed at your individual tax rate. At the end of each year you need to produce a profit and loss statement and a personal tax return.

You might be able to claim some business expenses when you prepare your tax return. You can find out more about what you can claim at the Australian Taxation Office (ATO) website, and seek help from your accountant if you’re unsure.

Planning for a rainy day

The success of your business can rely on your personal health and wellbeing, so it’s important to have financial plans in place in case of accidents or emergency. One way to do this is to consider income protection insurance, which can pay you a wage if you’re unable to work, or cover the cost of hiring a replacement, among other things.

Including super

While paying yourself superannuation isn’t compulsory, it might be something to consider to help you afford the life you want to have in the future.

Employers, regardless of how big or small the business is, are required by Federal Government law to pay at least 9.5% of all eligible workers’ ordinary time earnings to their super accounts if they earn more than $450 a month (before tax).

Make sure you aren’t missing out and check the ATO website for any government contributions that might be available if you are self-employed.

Next up: Creating work-life balance in business

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. As this information has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.