If you’ve been heads-down building your startup and haven’t sorted out how to pay yourself yet, you’re not alone. It’s one of the most common things founders push to the bottom of the list – and one of the ones that causes the most headaches when it’s set up wrong from the start.

The good news: once you understand the options, it’s pretty straightforward. The structure you use matters a lot though, so let’s start there.

Why your structure matters before you pay yourself anything

The most common – and usually the best – setup for an Australian startup founder is:

1. A company
2. A family trust (also called a discretionary trust) to hold your shares in the company

It might sound like overkill, especially early on. But here’s why it’s worth it.

A company gives you more legal protection than a sole trader or partnership structure. It’s also the only structure that makes you eligible for the R&D Tax Incentive – which is genuinely significant if you qualify.

The trust sitting above the company gives you flexibility at tax time and at exit. If you’re the sole shareholder in a company and you sell your shares, capital gains tax can take a serious chunk of your proceeds. With a trust, you have far more flexibility around how any proceeds or dividends are distributed to beneficiaries – and you can make that call when it actually matters, not years in advance.

There’s also a practical argument: restructuring later is painful, expensive and time-consuming. Getting it right at the start is almost always cheaper.

The two main ways to pay yourself

Once your company and trust are in place, there are two ways you can draw an income.

Pay yourself as an employee

Your company puts you on payroll and pays you a salary. This means the company needs to handle the behind-the-scenes compliance: withholding PAYG tax and remitting it to the ATO via BAS statements, paying superannuation at the current rate into your nominated super fund each quarter, and including everything in end-of-year reporting.

Your super entitlement as an employee-director is the same as any other employee. The superannuation guarantee rate – check the ATO’s current rate – applies to your salary, so factor that into what the company can actually afford to pay.

Pay yourself via dividends

If the company is profitable, it can declare dividends to shareholders. Because your shares are held by the trust, the dividend flows to the trust first, and the trust can then distribute to its beneficiaries in whatever way makes the most tax sense at that time.

This is where the trust structure pays off. Rather than a fixed income with a fixed tax outcome, you have genuine flexibility.

One important note: dividends can only come from actual profits. They’re not a substitute for salary in the early days when cash is tight.

Pay yourself back first

Before any salary or dividends, make sure you’ve repaid any loans you’ve personally made to the company – whether that’s money you put in at the start or personal expenses you covered on the company’s behalf.

Why does this matter? You don’t need to declare loan repayments as income. And if you’re heading toward a capital raise, investors won’t want their money going toward existing debt. Most will expect any outstanding founder loans to be converted to equity before they come in anyway.

What about paying yourself as a contractor?

Some founders consider invoicing their own company as a contractor. It’s worth knowing this option has significant limitations.

Even if you structure it that way, the ATO’s personal services income rules are likely to apply if the majority of your income is coming from your own company. In practice, that means the company may still have to pay superannuation and WorkCover regardless of how the arrangement is set up. It’s not usually the clean solution it appears to be.

A note for IP-heavy startups

If your startup has significant intellectual property – patents, licensing arrangements, proprietary technology – it’s worth considering a separate entity to hold that IP alongside your operating company. It adds a layer of complexity, but it can create meaningful protection and flexibility down the track. Talk to an adviser before assuming the standard setup is right for you.

Getting set up properly

The company-plus-trust structure is the starting point for most Australian startup founders, but how you pay yourself from there depends on your cash position, your tax situation and where you’re heading. Getting the structure right early saves a lot of pain – and money – later.