One of the first questions after forming a company is “How do I pay myself?” The answer is not simply to transfer money whenever the bank balance allows. Salary, shareholder salary, drawings and dividends have different records and tax consequences.
Salary through payroll
A regular director or employee salary is processed through payroll. The company deducts PAYE, files employment information through payday filing and pays the net amount to you. This can create a predictable personal income rhythm, but the payroll setup and tax code need to be correct.
Use payroll when the arrangement is genuinely salary for work performed. Keep the employment or director records, pay runs, PAYE payments and KiwiSaver details where relevant.
Shareholder salary
A shareholder-employee salary is often considered when an owner works in the company but the final annual profit is not known until the accounts are prepared. The amount needs to be recorded consistently and included correctly in the company and individual tax work.
Do not call every transfer a shareholder salary after the fact. Agree the approach early, keep a record of what was paid and make sure the total is supportable by the work and the company’s results.
Drawings and overdrawn current accounts
Company money is not automatically personal money. Transfers to an owner may be recorded through a shareholder current account, but that account needs to be reconciled. If it becomes overdrawn, there can be tax, interest and financial-reporting consequences.
At month end, reconcile:
- personal payments made from the company account
- company costs paid personally
- salary and PAYE already processed
- dividends already declared
- money still owed by or to the company
Dividends are not a shortcut
A dividend is a distribution of company profit, not a replacement for recording wages or drawings. It should be supported by company records and solvency considerations, and imputation credits and withholding requirements may apply.
Before taking a large amount out, look at the company’s available cash, unpaid GST, PAYE, provisional tax, creditors and upcoming costs. A profitable-looking bank balance can include money owed to Inland Revenue.
A sensible owner-pay rhythm
Choose a regular amount the business can afford, keep a tax reserve and review the position monthly. Before year end, ask whether the company can support the proposed salary or dividend and whether the personal tax result is understood.
The correct treatment depends on the company’s records and circumstances. This is general information, not tax, legal or financial advice.
Make the next step practical
Use the ideas here as a starting point for a better conversation. The right answer depends on your records, timing and circumstances, so keep the assumptions visible and revisit them when something changes.