What is the difference between wages and drawings

Yes No. The most common of these include: PSI rules : if your business income is primarily produced through your personal skills, knowledge and efforts, the PSI rules may apply. Excess payments to associated persons : your company cannot pay excessive or unrealistic salaries to family members who perform no or little actual work for the business, to avoid tax. Division 7A : you cannot draw money out of your company that exceeds any amounts you have previously loaned to it.

Apart from these considerations, you are free to decide how you wish to remunerate yourself. Tax outcomes Salaries You will need to include any salary your company pays to you in your personal tax return and pay tax on it at your marginal rate.

Reasonable salaries paid to working family members are treated the same way, in their personal tax returns. Salaries paid are tax deductible for your company — reducing its profits and taxable income, and therefore the amount of company tax it pays.

So tax hasn't been paid on it. A trust doesn't pay tax in its own right. It gives it to people in the family group and then they pay the tax for that trust. You can also give it to another company or another entity as well from a trust. The trust doesn't pay tax, other people do and that's why you're taking drawings pre-tax. The most popular from a company is a salary. The most popular or easiest way from a trust is a drawing.

With a company, the third way is dividends. Dividends is a payment of prior year profit. So you pay tax on the profit in the company. Companies do pay tax unlike a trust and then you pay that out to the company shareholder the year after. With a trust, the third way is distributions. Which is a distribution of the trust's profit at the end of the year. As a business , rental property owner or start-up , you get a kick out of having your own gig.

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