An owner-director should identify whether a payment is salary and wages, director's fees or dividends; all are assessable, and PAYG withholding on wages and director's fees must be sent to the ATO (ATO, checked 2026-10-01). The company's money is not the owner's money merely because the owner is its sole shareholder and director: a shareholder payment labelled a loan can still be treated as a dividend under Division 7A, and directors may become personally liable for the company's unpaid PAYG withholding, GST and super guarantee charge (ATO, checked 2026-10-01). For a complying Division 7A loan, the ATO benchmark interest rate is 8.37% for 2026 and 8.77% for the income year ending 30 June 2027 (ATO, checked 2026-10-01).
What are the assessable ways to pay an owner-director?
The ATO identifies salary and wages, director's fees and dividends as ways to access private-company money. The choice of label does not, by itself, determine the tax treatment.
| Payment route | Treatment stated in the cited ATO guidance |
|---|---|
| Salary and wages | Included in the recipient's assessable income. If the company pays the amount, it must send PAYG withholding to the ATO. |
| Director's fees | Included in the recipient's assessable income. If the company pays the fees, it must send PAYG withholding to the ATO. |
| Dividends | Included in the recipient's assessable income. A normal dividend is already assessable under other parts of the income tax law and is not caught by Division 7A. |
All three rows reflect ATO guidance checked 2026-10-01.
When must the company send PAYG withholding?
When a company pays an owner-director salary and wages or director's fees, the PAYG withholding amount must be sent to the ATO. The cited employee-payments guidance used here addresses wages and director's fees; its PAYG rule should not be extended to another payment type without checking the relevant official guidance (ATO, checked 2026-10-01).
Keeping the payment type clear is important: director's fees are assessable and subject to the stated PAYG rule, while a shareholder advance described as a loan may raise a separate Division 7A issue.
When can a loan or other payment be treated as a dividend?
Division 7A can treat a payment, loan, gift or debt forgiveness from a private company to a shareholder or associate as a dividend for income tax purposes—even if the participants treat it as an advance, gift or writing off of a debt. Calling a transaction a loan therefore does not settle its treatment (ATO, checked 2026-10-01).
A Division 7A deemed dividend is generally unfranked. The ATO says a normal, frankable dividend is usually the most effective route for providing a payment or other benefit to a shareholder or associate (ATO, checked 2026-10-01).
Division 7A does not apply to amounts already assessable under other parts of the income tax law. The ATO gives normal dividends and director's fees as examples (ATO, checked 2026-10-01).
A separate exception applies when the company repays the amount or converts it into a complying Division 7A loan by the company's lodgment day for the income year in which the payment or benefit occurs. In that situation, the amount is not treated as a dividend (ATO, checked 2026-10-01).
What makes a Division 7A loan complying?
A loan must satisfy each of the following requirements:
| Requirement | What the cited ATO guidance requires | Source |
|---|---|---|
| Written agreement | The written agreement must be in place before the company's lodgment day. | ATO, checked 2026-10-01 |
| Minimum interest rate | The loan must meet the minimum-interest requirement. | ATO, checked 2026-10-01 |
| Maximum term | The maximum term is 7 years for an unsecured loan or 25 years for a mortgage-secured loan. | ATO, checked 2026-10-01 |
The published benchmark rates are:
| Applicable period | ATO benchmark interest rate | Source |
|---|---|---|
| 2026 | 8.37% | ATO, checked 2026-10-01 |
| Income year ending 30 June 2027 | 8.77% | ATO, checked 2026-10-01 |
Before relying on the repayment or conversion exception, check that the repayment or conversion into a complying loan has occurred by the company's lodgment day for the relevant income year (ATO, checked 2026-10-01).
When can unpaid amounts create personal liability?
Directors may become personally liable for the company's unpaid:
- PAYG withholding;
- GST; and
- super guarantee charge.
These are director penalties under the ATO regime. The cited guidance says directors may become personally liable; it does not make liability automatic in every case (ATO, checked 2026-10-01).
What should stay on the owner-director checklist?
- [ ] Confirm whether the proposed payment is salary and wages, director's fees, a dividend or a shareholder benefit.
- [ ] If the company pays salary and wages or director's fees, check that the PAYG withholding amount has been sent to the ATO.
- [ ] Screen any payment, advance, loan, gift or debt forgiveness involving a shareholder or associate under Division 7A.
- [ ] If relying on a complying loan, check the written-agreement, minimum-interest and maximum-term requirements.
- [ ] If relying on the repayment or conversion exception, check that it occurred by the company's lodgment day for the relevant income year.
- [ ] Monitor the company's unpaid PAYG withholding, GST and super guarantee charge because directors may become personally liable for those amounts.
These checks summarise ATO guidance checked 2026-10-01.
What is not stated on the official pages used here?
The dedicated ATO “paying yourself” page was unavailable when checked; any guidance available only on that page is not stated on the official pages used here.
The super guarantee treatment of salary and director's fees paid to owner-directors is not stated on the official pages reviewed here and needs a separate check. Company tax rates and franking-credit mechanics are also not stated on the official pages reviewed here and are outside this checklist.
Frequently asked questions
Does calling an advance a loan prevent Division 7A from applying?
No. The ATO says Division 7A can treat a loan or advance from a private company to a shareholder or associate as a dividend even if it is described as another type of transaction. Repayment or conversion into a complying loan by the company's lodgment day is the relevant exception, provided the loan requirements are met (ATO, checked 2026-10-01).
Do director's fees require PAYG withholding?
Under the cited ATO rule, a company paying director's fees must send the PAYG withholding amount to the ATO. Director's fees are also included in the recipient's assessable income (ATO, checked 2026-10-01).
Which benchmark rate applies to a complying Division 7A loan?
The ATO lists a benchmark interest rate of 8.37% for 2026 and 8.77% for the income year ending 30 June 2027 (ATO, checked 2026-10-01).
Can directors be personally liable for the company's unpaid amounts?
Yes. Directors may become personally liable for the company's unpaid PAYG withholding, GST and super guarantee charge under the ATO director-penalty regime (ATO, checked 2026-10-01).
Does this checklist explain superannuation or company tax rates?
No. The treatment of salary and director's fees for super guarantee purposes is not stated on the official pages reviewed here. Company tax rates and franking-credit mechanics are also not stated on those pages and require a separate official-source check.
Sources
- Division 7A Myths debunked | Australian Taxation Office
- Types of payments to employees | Australian Taxation Office
- Private company benefits – Division 7A dividends | Australian Taxation Office
- Loans by private companies | Australian Taxation Office
- Division 7A – benchmark interest rate | Australian Taxation Office
- Director penalties | Australian Taxation Office