Should You Be Paying Yourself More (or Less) This Year?

One of the most important — and most misunderstood — decisions in a business is:

How you pay yourself.

Not just how much… but how.

Because done properly, this can:

• Improve your cashflow

• Reduce your overall tax

• Create consistency in your personal finances

Done poorly?

• You overpay tax

• Cash gets tight

• And everything feels reactive

Step 1: Stop Guessing — Start With a Plan

Most business owners fall into one of these habits:

• Taking money “as needed”

• Paying themselves randomly

• Avoiding drawings/salary “to save tax”

👉 None of these are strategies.

Instead, you want to:

• Define a target personal income

• Then structure how you get there

Step 2: Understand the Tax Reality

Here’s the key concept:

👉 Different types of income are taxed differently — and timing matters

For business owners (especially in a company structure), you typically have:

• Salary (PAYG income)

• Dividends (from company profits)

• Drawings (if not structured as salary)

Step 3: Use Tax Brackets to Your Advantage

This is where things get interesting — and where good planning makes a real difference.

Australia has progressive tax rates, meaning:

• The first portion of your income is taxed lower

• Higher income gets taxed at higher rates

👉 So a common strategy is:

Pay yourself a base salary up to an efficient tax bracket…

Then:

Take additional profits as dividends (or leave in company)

Example (Simplified):

Let’s say:

• You run a company

• It generates strong profits

A typical approach might be:

• Pay yourself a salary up to a certain level (e.g. where tax is still reasonable)

• Then:

  • Top up with dividends if needed, or

  • Retain profits in the company (taxed at company rate)

👉 This helps:

• Smooth your personal tax

• Avoid jumping unnecessarily into higher tax brackets

• Keep flexibility

⚠️ Important:
There’s no “one-size-fits-all” number here.

It depends on:

• Your total income

• Your partner/spouse situation

• Other income sources

• Business profitability

This is exactly why planning with your accountant matters.

Step 4: So… More or Less?

Now let’s bring it back to the core question.

👉 You may need to pay yourself MORE if:

• You’re underpaying yourself and struggling personally

• The business is profitable but you’re not seeing the benefit

• You’re avoiding income “to save tax” (but not actually planning properly)

➡️ In this case:
Increase your structured income — but do it strategically

👉 You may need to pay yourself LESS if:

• The business cashflow is tight

• You’re pulling too much out too early

• You’re not leaving enough for tax, GST, or growth

➡️ In this case:
Dial it back and stabilise the business first

Step 5: Combine Salary + Dividends (For Companies)

For many business owners operating through a company, the sweet spot is:

👉 A combination approach

• Consistent salary → covers personal living

• Dividends (as needed) → flexible top-ups

• Retained profits → for growth or future planning

This allows you to:

• Manage tax brackets

• Control timing of income

• Keep business cashflow healthy

Step 6: Don’t Forget the Bigger Picture

This isn’t just about tax.

It also impacts:

• Your borrowing capacity (banks like consistent income)

• Super contributions

• Business reinvestment

• Personal lifestyle stability

👉 A well-structured approach helps across all of these.

What Most Business Owners Get Wrong

• ❌ No defined personal income target

• ❌ Taking money randomly

• ❌ Ignoring tax brackets entirely

• ❌ Not reviewing during the year

• ❌ Waiting until EOFY to think about it

By then, most of the opportunity is gone.

Why Catching Up With Your Accountant Matters

This is one of those areas where a quick conversation can make a big difference.

Because a good accountant will:

• Look at your current income + profit

• Map out your likely tax position

• Recommend a structure (salary vs dividends vs timing)

• Adjust it as the year progresses

👉 It’s not just about compliance — it’s about strategy.

A Simple Framework for 2026

If you want to get this right this year:

1. Set your personal income target

2. Understand your tax bracket position

3. Structure your payments (salary + dividends if applicable)

4. Set aside tax properly

5. Review quarterly with your accountant

Final Thoughts

Paying yourself properly isn’t about guessing — it’s about planning.

When done right:

• You stay in control

• You optimise your tax position

• You reduce stress (both personally and in the business)

And most importantly — you actually benefit from the business you’re building.

Want Help Structuring This Properly?

Every situation is different — and small tweaks here can make a big difference over a full year.

We help business owners:

• Optimise how they pay themselves

• Use tax brackets effectively

• Balance personal income with business growth

Reach out if you’d like to get this set up properly for 2026.