Running a successful business isn’t just about generating profit — it’s about how you extract that profit in the most tax-effective way. For Australian business owners with turnover under $10 million, choosing the right strategy can make a significant difference to your tax bill, personal income, super contributions, and long-term wealth.
With 30 June 2025 approaching fast, now is the time to ensure your profit extraction method is optimised for both compliance and financial efficiency.
Common Profit Extraction Methods
Below are three of the most widely used strategies by small business owners in Australia to extract profits:
- Salary / Wages (PAYG)
- Deductible to the company.
- Subject to PAYG withholding and Super Guarantee (11.5% for FY2025).
- Improves loan serviceability and superannuation balances.
- May trigger payroll tax if wage bill exceeds state thresholds.
Best for: Regular income, borrowing capacity, super contributions.
- Dividends
- Paid from after-tax profits (company tax rate is 25% for base rate entities).
- Can be franked (includes tax credit for company tax already paid).
- Not subject to PAYG withholding or Super Guarantee.
- Not deductible to the company.
Best for: Extracting cash above the tax-free threshold in a tax-effective manner.
- Trust Distributions
- Used when a discretionary (family) trust owns shares in a company or operates the business.
- Income can be distributed to multiple beneficiaries to lower overall tax liability.
- Distributions must be resolved and documented before 30 June.
- Be mindful of Division 7A rules if profits are allocated but not physically paid.
Best for: Family groups looking to split income among low-tax-rate members.
Example: Comparing Profit Extraction Options
Let’s say you’re the sole director and shareholder of a company that made $200,000 in profit during FY2025. You want to extract $100,000 for personal use. Your marginal tax rate is 39% (including the Medicare levy).
Option A: Take $100,000 as Salary
| Component | Amount |
| Salary to you | $100,000 |
| Company deduction | Yes |
| Super Guarantee (11.5%) | $11,500 |
| PAYG withheld | ~$24,000 |
| Net to you | ~$76,000 |
Effective tax: ~24%
Option B: Take $100,000 as Fully Franked Dividend
| Component | Amount |
| Dividend declared | $100,000 |
| Franking credit (25%) | $33,333 |
| Taxable income (grossed up) | $133,333 |
| Tax on $133k at 39% | $52,000 |
| Less franking credit | ($33,333) |
| Net tax payable | ~$18,667 |
| Net to you | ~$81,333 |
Option C: Distribute via Family Trust
Assuming the trust distributes to:
- You: $40,000
- Spouse (low income): $40,000
- Adult child (student): $20,000
| Total tax paid across family | ~$12,000 |
| Net cash retained after tax | ~$88,000 |
Key Takeaways
Choosing how to extract profits isn’t a one-size-fits-all decision. You’ll need to weigh up:
- Your marginal tax rate
- Business structure (company, trust, or hybrid)
- Superannuation and investment goals
- Your cash flow needs
- Future plans (e.g. business sale, retirement)
In many cases, a blended approach — combining salary, dividends, and trust distributions — delivers the most tax-efficient result.
Final Thoughts: Review Before 30 June
If you haven’t reviewed your profit extraction strategy for the 2024–2025 financial year, now is the time. With tax laws changing and personal circumstances evolving, a quick review could save you thousands — or help you grow wealth more strategically.
Speak to your accountant or adviser today to ensure you’re making the most of your hard-earned profits.
—————BOOK YOUR EXCLUSIVE 15 MINUTE ZOOM CONSULTATION————-
We offer a 15-minute no obligation consultation to existing property investors, first home buyers and small business owners who are looking at property investments, business and asset protection. To Book an Appointment simply click here and pick a time and date.
BOOK YOUR ZOOM APPOINTMENT HERE
How can we help?
If you have any questions or would like further information, please feel free to give our office on 08 9221 5522 or via email – info@camdenprofessionals.com.au or arrange a time for a meeting so we can discuss your requirements in more detail.
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Camden Professionals, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.
Recent Comments