- Directors' fees are ordinary time earnings, so the 12% Super Guarantee applies from 1 July 2025.
- Directors' fees and salary have PAYG withheld, while dividends do not but carry franking credits.
- Company profits are taxed at 25% or 30% before franked dividends reach shareholders.
Directors’ fees are one of the main ways a company director can take money out of their own business, and the way you structure them shapes your tax, your super and your paperwork. Many founders pay themselves on instinct, then find at tax time that a cleaner mix was available.
Getting the basics right early saves money and stress. Good accounting and tax support helps you set this up properly from the start, whether you run a young startup or an established company.
How can I pay myself as a company director?
A company director can take money from the business as directors’ fees, as a salary or wage, as dividends, or as a loan or drawing. Each route carries different tax, super and reporting consequences. Most directors use a combination rather than a single method.
The four common options work like this:
- Directors’ fees: paid to a director for performing the duties of the office, usually approved by resolution.
- Salary or wages: paid under an employment arrangement when the director also works in the business.
- Dividends: paid to you as a shareholder out of the company’s after-tax profits.
- Loans or drawings: money taken from the company that is not a fee, wage or dividend.
Loans and drawings are governed by Division 7A rules, and an unpaid loan can be treated as a deemed dividend if it is not documented correctly. That topic sits outside this guide, so treat it as a signpost and confirm the detail before relying on it.
Directors’ fees vs salary vs dividends: what’s the difference?
Directors’ fees reward you for holding office and carrying out board duties, while a salary rewards you for day-to-day work as an employee of the company. Dividends are different again, because they are a return on the shares you own rather than payment for work. The distinction matters because the tax, super and paperwork attached to each one differ.
Non-executive directors, who sit on the board but do not run operations, are usually paid fees rather than a salary. Working directors often draw a salary for their operational role and may also receive dividends as shareholders. The table below sets out the comparison in one place.
| Option | How it’s paid | PAYG withholding? | Super (SG)? | Tax treatment | Best for |
|---|---|---|---|---|---|
| Directors’ fees | By resolution for holding office and board duties | Yes | Yes, 12% on ordinary time earnings | Taxed at your marginal rate | Non-executive or board-only directors |
| Salary or wages | Through payroll under an employment arrangement | Yes | Yes, 12% on ordinary time earnings | Taxed at your marginal rate | Directors working in the business |
| Dividends | From after-tax profits to shareholders | No | No | Grossed up with a franking credit for company tax paid | Owners sharing in company profit |
TIPWrite down the reason for each payment before you make it. A fee, a wage and a dividend are treated differently, and clear labelling keeps your bookkeeping and your tax return consistent.
How is each option taxed (PAYG, super, franking)?
Directors’ fees and salary are both taxed in your hands at your personal marginal rate, with tax withheld before you are paid. Dividends are taxed differently because the company has already paid tax on the underlying profit. Understanding the three moving parts, PAYG, super and franking, is the key to a sensible mix.
PAYG withholding
The company must withhold PAYG amounts from directors’ fees and salary and send them to the ATO, in the same way it does for any employee’s wages. The withheld tax is a prepayment against the director’s personal income tax for the year. If you are new to the mechanics, our guide to withholding tax covers how the rates and reporting work.
Superannuation
Directors’ fees are ordinary time earnings, so the super guarantee applies to them at 12% from 1 July 2025. This holds whether the director is paid fees for board duties or a salary for operational work. Dividends are not earnings for work, so no super is payable on them.
Since 1 July 2026, Payday Super timing applies, so the contribution must reach the director’s fund within 7 business days of the day the fees are paid, even where fees are paid as a single annual amount.
Franking credits
When a company pays tax on its profits and then distributes those profits as a franked dividend, the dividend carries a franking credit for the tax already paid. You include the grossed-up dividend, meaning the cash plus the credit, in your assessable income, then claim a tax offset equal to the credit. This treatment links to how equity and retained profits are recorded in the company’s books.
What is the dividend ‘double tax’ question really about?
The dividend double tax question asks whether company profit is taxed twice, once in the company and again in the shareholder’s hands. Australia’s imputation system is designed to prevent exactly that outcome for franked dividends. The franking credit is what stops the double charge.
Here is the flow in plain terms. The company earns a profit and pays company tax at 25% or 30% depending on its turnover. When it pays a franked dividend, the shareholder receives a credit for that company tax, so profit is effectively taxed once at the shareholder’s marginal rate.
- If your marginal rate is higher than the company rate, you top up the difference.
- If your marginal rate is lower, the excess credit can reduce other tax or be refunded.
- Unfranked dividends carry no credit, so no company tax has been passed on.
What paperwork do directors’ fees need?
Directors’ fees must be authorised properly before they are paid, usually by a resolution recorded in the company’s minutes. The authority to pay fees typically comes from the company constitution or a shareholder decision. Keeping this record is part of good governance, not an optional extra.
The core documents to keep are:
- A board or shareholder resolution approving the fees.
- Payroll and single touch payroll records showing PAYG withheld and super paid.
- Minutes and dividend statements where dividends are also paid.
These records overlap with a director’s broader compliance duties, which our guide to company secretary responsibilities explains in more detail. Every director also needs a Director ID before being appointed, and that identifier stays with you across companies.
Where a director is paid a salary as well, the same records feed into single touch payroll reporting to the ATO. Dividend payments need their own distribution statements showing the franked and unfranked amounts. Keeping fees, wages and dividends in separate, clearly labelled records makes your annual return far simpler to prepare.
How do you choose the right mix for your business?
The right mix depends on how much you work in the business, your company’s profit, and your personal marginal tax position. A working director with modest profit often leans on salary or fees, while a profitable company with several shareholders may favour franked dividends. There is rarely a single correct answer.
A few practical pointers can guide the decision:
- Fees and salary create a deduction for the company and are reliable even in a low-profit year.
- Dividends only work when there are franked profits to distribute.
- A blend can smooth cash flow while keeping super and tax obligations on track.
This is general information rather than advice for your situation, so it is worth checking your own numbers with a qualified accountant before you settle on a structure. Small changes to timing or proportion can have a real effect on the tax you pay.
How Sleek helps you pay yourself tax-effectively
Sleek pairs you with a registered tax agent who can model directors’ fees, salary and dividends against your company’s numbers and your personal position. A dedicated tax accountant sets up your payroll, super and franking correctly, so you stay compliant while keeping more of what you earn. As a small business accountant partner, the team handles the reporting so you can focus on running the company.
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Frequently Asked Questions
Do directors' fees need to be approved before they are paid?
Fees are usually authorised under the company constitution or by a shareholder resolution, and the decision is recorded in the minutes. Without that authority, a payment may not qualify as directors’ fees. Keeping the resolution on file protects both the company and the director.
Can a director be paid without an employment contract?
A non-executive director can be paid fees for holding office even though they are not an employee of the company. The fees relate to the duties of the directorship rather than to a job description. A director who also works in the business, by contrast, is typically employed and paid a salary.
Are directors' fees tax deductible for the company?
Directors’ fees are generally deductible to the company when they are genuinely incurred in producing its assessable income. The company claims the deduction in the year the fees are paid or become payable. This makes fees useful for reducing company profit in a strong year.
When does the company pay the withheld PAYG to the ATO?
PAYG withheld from fees and salary is reported and paid through activity statements and single touch payroll on the company’s usual reporting cycle. Small employers commonly report on a quarterly or monthly basis. Late payment can attract interest and penalties, so the timing matters.
Do I need a Director ID to receive directors' fees?
Every company director in Australia must hold a Director ID, and this applies before you take up the role. The identifier is a one-off registration that follows you across any companies you serve. It is separate from the fees themselves but is a condition of being a valid director.
Can I salary sacrifice directors' fees into super?
Directors can direct part of their fees into super as a concessional contribution, provided the arrangement is agreed in writing before the fees are earned, and within the annual cap. The concessional contributions cap is A$32,500 for the 2026-27 year. Contributions above the cap can be taxed at a higher rate, so the arrangement needs planning.
What happens if I take money as a loan instead of fees?
A loan or drawing from the company is not a fee, wage or dividend, and it falls under Division 7A rules. If the loan is not documented and repaid on the required terms, it can be treated as a deemed unfranked dividend and taxed in your hands. Getting the loan agreement right before year end avoids that result.
