How to Pay Yourself From a Company in NZ

One of the most common questions we get from business owners who have recently incorporated is: how do I actually get money out of my company?

It sounds simple, but the answer matters — because different methods have different tax consequences. Getting this right can save you thousands of dollars a year. Getting it wrong can create IRD problems and unexpected tax bills.

Here are the main options, how they work, and how to think about which combination makes sense for you.

When you operated as a sole trader, your business income was your income. You could spend it however you liked.

A company is a separate legal entity. The money in the company's bank account belongs to the company, not to you personally. Taking money out without the right structure creates tax problems — specifically, it can be treated as an unclassified benefit or a shareholder loan, both of which have consequences.

There are three legitimate ways to take money out of a New Zealand company:

1. Salary (or wages)
2. Shareholder drawings (repayment of funds you have put in)
3. Dividends

Each works differently.

Paying yourself a salary is the most straightforward method. The company pays you as an employee, deducts PAYE, and pays it to IRD. You receive your net pay.

Advantages:

• Clean and simple — treated like any other employment income
• Reduces the company's taxable profit (salary is a deductible expense)
• Contributes to KiwiSaver if you are enrolled
• Counts as income for mortgage applications and other purposes

Disadvantages:

• PAYE must be deducted and paid to IRD every pay period — no deferral
• At higher income levels, your personal marginal rate (up to 39%) may exceed the company tax rate (28%)

The key decision: How much salary to pay yourself. Too much and you push yourself into higher personal tax brackets. Too little and you leave money in the company that you may need personally.

Most owner-operators pay themselves a salary up to around $70,000–$100,000 (depending on their personal circumstances) and take the rest as dividends. Your accountant should model this for your specific situation.

If you have previously put money into the company — as a loan or as capital — you can draw that money back out without tax consequences. You are simply repaying yourself.

This is tracked through a shareholder current account (also called a director's loan account). When you put money in, the balance goes positive (the company owes you money). When you take money out, the balance decreases.

Important: If you take more out than you have put in, the account goes into debit — meaning you owe the company money. IRD requires that debit balances either be repaid or charged interest at the prescribed rate. Ignoring this is a common compliance issue.

Drawings are not a tax-free salary replacement. They are a timing mechanism — useful for managing cash flow, but not a way to avoid tax on company profits.

A dividend is a distribution of the company's after-tax profits to shareholders. If you own all the shares, all dividends come to you.

How it works:

• The company pays 28% corporate tax on its profits
• It can then distribute those after-tax profits as dividends
• Dividends come with imputation credits — a credit for the tax already paid at the company level
• You declare the dividend as personal income, but the imputation credits offset your personal tax liability

Example:

• Company profit: $100,000
• Company tax (28%): $28,000
• After-tax profit available for dividend: $72,000
• Dividend paid to shareholder: $72,000 with $28,000 of imputation credits attached
• If your personal tax rate is 33%, you owe 5% more tax on the grossed-up dividend ($5,000)
• If your personal tax rate is 28% or below, no further tax is due

Advantages:

• Flexible — you choose when to declare dividends
• Efficient if your personal tax rate is at or below 28%
• No PAYE administration

Disadvantages:

• Does not count as "income" for mortgage applications (lenders want to see salary)
• Requires proper documentation (a dividend resolution)
• Does not contribute to KiwiSaver

For most owner-operators, the most tax-efficient approach is a combination:

1. Pay yourself a salary up to the point where your personal marginal rate equals the company rate (currently around $70,000–$78,000 for most people, depending on other income)
2. Leave remaining profits in the company at 28% tax
3. Declare dividends when you need additional personal income, or at year end to distribute retained earnings

This approach minimises the total tax paid across both the company and personal levels.

The exact salary level depends on your personal circumstances — other income, KiwiSaver contributions, mortgage commitments, and how much you need to live on. There is no one-size-fits-all answer.

Do not just transfer money from the company account to your personal account without classification. This creates an unclassified shareholder loan. IRD will want to know what it is — salary (PAYE required), dividend (documentation required), or loan repayment (current account tracking required).

Do not let a debit current account grow unchecked. If you owe the company money, IRD can deem interest income on the balance. Keep your current account in order.

Do not confuse personal and company expenses. Personal expenses paid through the company are either a benefit (potentially subject to FBT) or a drawing. Neither is a deductible business expense.

The salary/dividend split is one of the most valuable things a good accountant does for owner-operators. Done well, it can save $5,000–$15,000 in tax per year for a business earning $150,000–$300,000.

If you are not sure whether your current approach is optimal, it is worth a review. The rules are not complicated, but the modelling needs to be done for your specific numbers.

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Eastmure & Associates advises company directors and owner-operators across Christchurch, Canterbury, Selwyn, and Waimakariri on tax-efficient remuneration structures.