Can I withdraw money from my own company?

Posted 16 Feb '22

What do I Need to Know to Safely Withdraw Money From My Own Company?

As a company director, it may seem like an open privilege to use your company’s card for personal expenses. After all, it is your company, right? While many new business owners take on this mindset, they fail to realize that they cannot use their company’s accounts as an open ATM.

As soon as your business becomes a Proprietary Limited Company (PTY LTD), the government no longer views it as an extension of yourself. That is, you are no longer one viewed as one entity in conjunction with your business.

Therefore, freely withdrawing money from your company for personal use can have heavy financial implications. Whether you are the founder of an established corporation or the owner of a startup business, it is important to know how to navigate the subject of withdrawing money from your own company.

Just because you are now viewed as an associate of the company does not mean you can’t touch the company money at all! It simply means that there are now appropriate and legal ways for you to approach withdrawing money from your own company. Let’s review your options together!

Withdrawing Money From Your Company

Can you withdraw money for personal use from your own company? The short answer is, “yes.” However, the process of how you can withdraw money safely and without heavy financial implications requires a more intricate explanation.

Since you are no longer viewed as synonymous with your company, it is essential for you to know how to appropriately access funds. Here are the top ways Australian business owners choose to withdraw money from their company:

• Salary/Wage/Director’s Fees: That’s right! You can list yourself and your family members (provided they work in the business) as company employees. This will give you the benefit of easily accessing money from your company. It is important to note that you will need to declare these earnings on your personal tax returns.
• Declare Franked Dividends: A company can choose to issue a dividend payment to its shareholders. Generally, this dividend will be franked which means company tax has already been paid to avoid any double taxing issue on the monies earned. The amount a company can afford to issue will depend on the company’s saved earnings and franking credit balance. If you go this route, don’t forget to report those franked dividends as an income!
• Reimbursement: As a shareholder or director, you can withdraw the money you had previously contributed to the company if it was contributed as a loan. That is, you can take back the money you initially used to start your business. Notably, as lending of money is a tax-free transaction the return of this money is also tax free.
• Division 7a Loan: While they can become quite complicated without the guidance of an accountant, many directors choose to take out a Division 7a Loan from the company. Review the next section of this article for a more in-depth look at Division 7a Loans.

As you can see, there are quite a few avenues you can take to withdrawing money from your company! It is recommended, before proceeding, that you check in with a trusted accountant to assist you. The accounting professionals at Empire Accountants are ready to help you navigate this process!

More Details About Division 7a Loan

While there isn’t anything wrong with taking out a Division 7A loan, there is a reason many business owners opt for one or the other money-withdrawal options. Without the help and advice from an accountant, a Division 7a Loan can be complicated and could lead you into hot water with the ATO if it doesn’t follow the correct rules.

In short, taking out a Division 7a Loan means that you are withdrawing a certain amount of money from the company under a commercial loan agreement.  As mentioned before, lending of money is tax-free hence why these seems attractive, however, for it to be correct, it must follow the Division 7A laws. This essentially means it must be done on commercial terms with paying back a loan repayment including interest.  This loan repayment can either be done through cash deposits or one of the other methods previously mentioned.

The financial consequences of not paying off your Division 7a loan can be quite heavy. For more information about how to avoid implications such as deemed dividends and tax bills, Reach Out to an experienced accountant.

Consult an Accountant

When it comes to your Proprietary Limited Company, you will want to make financial moves that help you achieve your goals while not losing money unnecessarily. Every year, business owners accidentally waste money by not consulting a professional in accounting.

As a business owner, you don’t want to be managing your company on the wrong foot. In the world of finances, even an accidental misstep can lead to financial implications for you and your company. Working alongside an accounting professional also provides you the reassurance that you are doing things correctly and in accordance with the ATO.

Skip the lengthy research and talk to an accountant about whether it’s appropriate, in your situation, to declare wage, accept dividends, or draft a Division 7a loan. While some money withdrawal options are more straightforward than others, it’s so important to coordinate with an accountant to make sure you’re heading in the right direction.

Contact us today 07 3124 0244!

For more information about Division 7a Loan obligations and frequent mishaps, check out This Resource published by the ATO.