The three main ways to withdraw money from your business
“How do I withdraw money from my business.”
This is a question that we are often asked by our clients. There are many reasons for why a business owner would want to withdraw money from the business, from pursuing business growth opportunities to the payment of an employee.
However, like many things in business, there are some traps you need to be aware of:
Follow these points to avoid the mistakes that business owners make when:
- First of all register your business for PAYG Withholding;
- Get each employee to complete a Tax file number declaration form;
- Lodge the completed Tax File Number Declaration with the Tax office;
- The business commences paying wages to the employee;
- At the end of the financial year the business needs to;
- Prepare and provide a PAYG payment summary to your employee;
- Lodge a PAYG Payment summary statement with the ATO.
When your employee’s wages ;
- Don’t exceed $18,200 for the year no PAYG Withholding is payable on the employer’s BAS.
- Exceed $18,200, the employer must calculate and remit PAYG Withholding on their next BAS.
As an employer you need to be aware of your Superannuation obligations when you pay wages. An employee who earn less than $449 a month doesn’t receive Superannuation. Employee’s that earn at least $450 a month must receive a 9.5% contribution to their chosen superannuation fund.
It is important to note that business owners can also be employees of their company.
Via a Shareholder Loan Drawing
Owners and Employers can use Shareholder loans to withdraw money from businesses:
Here is an example:
- The shareholder pays for company expenses from their personal funds;
- The payment by the shareholder creates a loan from the shareholder to the company;
- During the year, shareholders can withdraw an amount equal of money that they lent to the company. PAYG Withholding is not paid on this money as it is the return of loaned funds;
- A shareholder who draws more funds than they are owed by the company will have a loan owing to the company that must be repaid.
It is important to note these types of loans need to be repaid before the end of the financial year (30th of June).
Via payment of a Dividend
The final quarter of the financial year is a great time to review whether to use dividend payments to shareholders as an appropriate method to withdraw money from your business.
- Companies that make a profit in prior years can be paid to shareholders as dividends;
- Additionally, if your company has paid income tax on the prior year profits the tax paid by the company can be credited to the shareholders as a part of the dividend payment.
As a result Complete Accounting can help guide your business through these processes. Please Contact our friendly staff today to book an appointment.