Drawings are a distribution of profit, not a deduction. A sole trader or partner cannot pay themselves a wage at all, while a company or trust can deduct a salary paid to a working owner. Either way, if your own labour is not costed at market rate, your profit figure is overstated and your business looks healthier than it is.

This is one of those topics that starts as a technical question and ends up being about something else entirely. The mechanics take five minutes to explain. The consequence, that thousands of Australian business owners are quietly subsidising their own business with unpaid labour and calling the result a profit, takes rather longer to deal with.

I am Mina Baselyous, a Certified Practising Accountant (CPA) and Chartered Tax Advisor (CTA) in Melbourne. This article covers what you can and cannot do by structure, what a real owner’s wage actually costs, and why the answer changes how you should price your work.

The Rule Depends Entirely on Your Structure

There is no single answer, because the law treats you differently depending on the entity. In a sole trader or partnership you are the business, so you cannot be your own employee. In a company or trust the entity is separate from you, so it can employ you and deduct what it pays. That distinction drives everything else.

Sole Traders and Partners

The ATO is explicit. In its guidance on deductions for salaries, wages and super contributions, current as at September 2026, it states that as a sole trader you are the business owner and not an employee of your business, which means you cannot pay yourself a salary or wage. Any nominal payment of a salary or wage to yourself is considered a distribution of profit.

Partners in a partnership are in the same position for the same reason. Money you transfer to your personal account is drawings. It is not an expense, it does not reduce the business profit, and it does not reduce your tax. You are taxed on the whole profit of the business regardless of how much of it you actually took.

Companies and Trusts

Here the position reverses. The same ATO guidance confirms that your company or trust can generally claim a deduction for any salaries and wages paid to you or other workers. A working director can be a genuine employee of their own company, on a real wage, with PAYG withholding and superannuation.

That is a real advantage, and it is one of the reasons the structure question matters so much for an established business. It is covered from the other direction in our guides to moving from sole trader to company and paying yourself from your company tax-effectively.

What Drawings Actually Do to Your Reports

Drawings never appear on your profit and loss. They reduce equity on the balance sheet and they reduce cash, which is why they are one of the seven reasons your profit and your bank balance disagree. If your drawings are showing up as an expense in your accounts, the profit figure you are reading is wrong.

We see this coding error constantly on new client files, and it matters. A business reporting $60,000 of profit when $80,000 of drawings has been incorrectly expensed actually made $140,000, and its tax return is wrong. The reverse error, drawings posted to a loan account and forgotten, creates a different problem entirely, which we come to below.

If you want to see how drawings flow through the reports, our guides to reading a balance sheet and retained earnings follow the same money from profit to equity to the bank.

The Real Problem: Your Labour Is Free on Your Profit and Loss

Here is the part almost nobody is told. If you are a sole trader working sixty hours a week, your labour costs your profit and loss nothing. So the profit figure is not a measure of whether the business works. It is a measure of what is left over after everyone except you has been paid properly.

Work it through with numbers. A business turns over $600,000. Every cost except the owner’s own time comes to $480,000. The reported profit is $120,000, and the owner draws all of it. On paper, a profitable business.

The business does not make $120,000. It loses $25,600 and disguises the loss as the owner’s income. The owner is working for below market rate and funding the shortfall with their own time, which is the only input nobody ever invoices for.

In practice, says Mina Baselyous (CPA, CTA, Registered Tax Agent), this is what burnout looks like in a set of accounts. The owner cannot understand why they work harder every year and never get ahead. The answer is in the profit and loss: their own wage is the item absorbing the gap between what the business charges and what it costs to run.

What a Real Owner’s Wage Actually Costs

If you decide to pay yourself properly through a company, budget for more than the gross figure. Superannuation is 12 per cent for 2026-27, and depending on your total wages bill you may also have payroll tax and workers compensation to fund. The true cost of a $130,000 wage is materially above $130,000.

• Superannuation guarantee. 12.00 per cent for 2026-27, per the ATO’s key superannuation rates and thresholds, with a maximum contribution base of $270,830 for the year.
• PAYG withholding. Not an extra cost, but it does change your cash timing, because tax comes out as you go rather than in a lump at lodgement.
• Payroll tax. Once total Australian wages cross the state threshold. Our guide to payroll tax in Victoria covers the thresholds and grouping rules.
• Workers compensation. Premiums are calculated on your wages declaration, so adding a director’s wage can increase the premium.
• Single Touch Payroll reporting. A working director on a wage is reported through Single Touch Payroll like any other employee.

None of that is a reason not to do it. Superannuation in particular is a deduction to the company and a concessionally taxed contribution for you, which is one of the more reliable long term wealth strategies available to a business owner. It is also the discipline that forces the real cost of your labour onto the profit and loss where it belongs.

The Four Legitimate Ways to Take Money Out of a Company

If you operate through a company, there are four proper routes and one very expensive improvisation. The improvisation is transferring money to yourself and sorting it out later, which creates a shareholder loan and lands you in Division 7A.

• Wages or directors’ fees. Deductible to the company, taxed to you at your marginal rate, with superannuation payable.
• Franked dividends. Paid from retained profits, carrying credits for company tax already paid, subject to the section 254T tests covered in our guide to retained earnings.
• Superannuation contributions. Deductible to the company and concessionally taxed in the fund, within the contribution caps.
• Repayment of a loan you made to the company. If you genuinely lent the business money, repaying you is a return of capital, not income.

Anything else is a loan from the company to a shareholder. That requires a written agreement, minimum yearly repayments and interest at the benchmark rate of 8.77 per cent for the 2026-27 income year according to the ATO’s Division 7A benchmark interest rate. Ignore it and the balance becomes a deemed unfranked dividend, taxed in full with no credit. Our guide to Division 7A sets out the traps.

Why This Changes How You Price

Once your own wage is costed into the profit and loss at market rate, your real margin appears, and it is usually lower than you thought. That is not bad news. It is the first honest number you have had, and it is the one that tells you whether your prices work.

From there the arithmetic is straightforward. If the business loses $25,600 after paying you properly, you need roughly that much again in gross profit before the business stands on its own, which is a pricing, mix or volume decision. Our guides to profit margins and how much your business actually needs to make take it from there.

It matters at the other end too. A buyer valuing your business will normalise the owner’s wage to market rate before applying a multiple, precisely because they will have to pay someone to do your job. A business that only looks profitable because the owner works for free is worth far less than its reported profit suggests, as our guide to valuing a business in Australia explains.

What to Do Next

Work out what you would have to pay someone at market rate to do your job, add 12 per cent superannuation, and subtract the total from your reported profit. That single calculation tells you whether you own a business or a demanding job, and it takes about two minutes.

If the answer is uncomfortable, the fixes are pricing, cost structure and delegation, in that order. If the answer is fine but your structure is wrong, that is a different and much easier conversation, and it belongs in tax planning alongside a review of your business structure.

Frequently Asked Questions

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