Tax-Efficient Ways to Pay Yourself As A Company

If you’ve set up a company, one of the first “real world” questions you’ll run into is simple: how do you actually get money out of it?

And more importantly, how do you pay yourself as a company director in New Zealand in a way that’s tax-efficient, compliant, and won’t create headaches later?

It’s completely normal to feel a bit unsure here. Paying yourself isn’t just a banking decision - it touches tax, employment obligations, and your directors’ duties under the Companies Act.

In this guide, we’ll walk through the most common ways directors pay themselves (salary, director fees, dividends and shareholder drawings/loans), what the key legal and tax issues are, and the practical “set it up right from day one” steps that help you stay protected as your business grows.

Why Paying Yourself Properly Matters (It’s Not Just About Tax)

When you run a company, the money the company earns generally belongs to the company - not automatically to you personally. Even if you’re the only director and only shareholder, the company is still a separate legal entity.

That’s why paying yourself properly matters. If you don’t, you can run into issues like:

Unexpected tax bills (for you or the company) because payments weren’t treated correctly.
Cashflow problems if you take money out without planning for GST, PAYE, income tax, provisional tax, or upcoming expenses.
Companies Act risks if money is taken out when the company can’t afford it (especially with dividends).
Messy accounting that becomes painful when you want to bring on investors, sell the business, or apply for finance.

It’s worth remembering that “tax-efficient” doesn’t mean “pay the least tax possible at any cost”. It means choosing a structure that’s legitimate, sustainable, and fits your business stage.

If you want a general overview of how directors can be paid, you can also look at how directors get paid and then come back to this guide for the deeper “what’s best for me?” comparison.

Quick note: this article is general information only. Sprintlaw isn’t a tax adviser, and tax outcomes depend heavily on your personal income, ownership structure, and the company’s circumstances. It’s a good idea to speak with a qualified accountant or tax adviser (and get legal advice where needed) before you decide how to pay yourself.

Option 1: Salary Or Wages (PAYE)

One of the most straightforward ways of paying yourself as a company director in New Zealand is to put yourself on a salary or wage and run PAYE, just like you would for any other employee.

Even if you’re the director, if you’re performing day-to-day work in the business, it can make sense to be treated as an employee for payroll purposes.

How It Works

In simple terms:

The company pays you a regular salary/wage.
The company withholds PAYE and pays it to IRD (and may have other payroll reporting obligations).
The company may need to deduct KiwiSaver (if applicable) and comply with other payroll requirements.
You receive net pay into your personal account.

Why Directors Choose Salary

Salary is popular because it’s predictable and “clean” from a compliance point of view. It can also help if you:

Need stable personal income to qualify for a mortgage or personal lending.
Want steady cashflow without relying on profits being declared as dividends.
Are building a business budget and want consistent costs.

Common Legal And Practical Considerations

Even if you’re a director, it’s still a smart move to document the arrangement properly. Depending on your role, you might use:

An Employment Contract (if the arrangement is genuinely employment-like).
A Directors Service Agreement (often used to document duties, fees, and director-related terms).

This isn’t just “paperwork for paperwork’s sake”. A clear written agreement can prevent misunderstandings later - especially if you bring on a co-founder, a new shareholder, or you step away from operations.

Tax Efficiency: The Pros And Cons

Pros:

Clear treatment for IRD (PAYE is well understood).
Regular income can help with personal budgeting.
Generally deductible to the company if it’s genuinely paid for work performed and is properly documented.

Cons:

PAYE and payroll compliance adds admin.
You can’t simply “turn it on and off” without considering cashflow and any legal/contractual obligations.
Salary isn’t always the most flexible option if income is seasonal.

In practice, many small business owners take a modest base salary (for stability), then top up through other methods when profits allow.

Option 2: Director Fees (And When They Make Sense)

Another common approach is paying yourself (or other directors) director fees.

Director fees are usually payments for governance and oversight - the director function - rather than “employee work” like sales, operations, or service delivery. In real life, owner-directors often do both, so it’s important your structure matches what’s actually happening in your business.

When Director Fees Are Useful

Director fees can work well when:

You have multiple directors, and not all directors work day-to-day in the business.
You want to separate “director work” from “employment work”.
You’re paying an independent director for governance expertise.

Make Sure The Paper Trail Matches The Payment

If you’re paying director fees, it’s wise to record:

What the fee covers (governance duties, meeting attendance, strategic oversight, etc.).
How often it’s paid.
Whether it’s fixed or variable.
Any reimbursement rules (travel, expenses, etc.).

For many companies, this is documented in a Directors Service Agreement and supported by good company records (for example, resolutions approving the fees).

Also, if you have more than one shareholder, it’s worth ensuring your governance documents don’t create confusion about who can approve what. A tailored Shareholders Agreement can help set clear expectations around payments to founders/directors, voting thresholds, and dispute resolution.

Tax Treatment (High Level)

Director fees are generally taxable income to you personally. Whether PAYE applies (and how it’s reported) can depend on the circumstances and how the payments are structured, so it’s best to have your accountant or tax adviser confirm the right setup before you start making payments.

Option 3: Dividends (And The Legal Rules You Must Follow)

Dividends are one of the most talked-about ways of paying yourself as a company director in New Zealand - but dividends are a shareholder payment, rather than a payment for acting as a director.

That distinction matters: you receive dividends because you’re a shareholder (or because you hold shares through a trust), not because you’re doing the work.

What Is A Dividend, Really?

A dividend is a distribution of value from the company to shareholders, typically funded from profits (or retained earnings) - and it must be done in a way that complies with the Companies Act 1993.

Dividends are often attractive because they can be more flexible than salary and may form part of a broader tax strategy (for example, depending on imputation credits and your personal income situation).

The Solvency Test (This Is The Big One)

In New Zealand, a company generally can’t just “declare a dividend because there’s money in the bank”. Directors must be satisfied the company meets the solvency test when the dividend is made.

Practically, that means the directors need to believe the company can:

Pay its debts as they fall due (liquidity test), and
Have assets greater than liabilities (balance sheet test).

If dividends are paid when the company isn’t solvent, directors can face personal risk. This is one of those areas where getting proper advice early can save you a lot of stress later.

Dividends Need The Right Company Settings

Dividends also work best when your company’s “rules” are clear, including:

What classes of shares exist (if any) and what rights attach to them.
How decisions are made between shareholders and directors.
What happens if one shareholder contributes more time or money than another.

These rules often live in your Company Constitution and/or your Shareholders Agreement.

If you’ve got co-founders (or you’re planning to bring on investors), setting this up properly from day one is especially important. Otherwise, dividends can become a flashpoint for disputes: one person wants money out, another wants to reinvest in growth.

Dividends And Tax (In Plain English)

Dividends you receive are generally taxable to you, but New Zealand’s imputation system may allow the company to attach imputation credits (reflecting tax already paid at the company level). That can make dividends more tax-effective in some situations.

However, the right approach depends on your profit level, whether the company has paid tax, whether you have other income, and whether you’ll need cash for upcoming expenses. Your accountant or tax adviser should run the numbers and help you plan.

Option 4: Shareholder Drawings And Director Loans (Handle With Care)

When small business owners talk about “taking drawings”, they’re often taking money out informally and planning to sort it out later.

In a company structure, this often ends up recorded as a shareholder current account or director loan in the accounts.

This can be a practical short-term tool - but it’s also one of the fastest ways to create tax and legal mess if it’s not managed properly.

What Are Shareholder Drawings In A Company?

In a sole trader business, “drawings” is a normal concept because you and the business are the same legal person.

In a company, it’s different. If you take money out without calling it salary or dividends, it may be treated as:

A loan from the company to you (which should be documented and repaid), or
An advance that later needs to be dealt with properly through salary, dividends, reimbursing expenses, or repayment.

Why Informal Drawings Can Be Risky

Problems typically arise when:

The company becomes owed a large amount by the shareholder/director, and repayment isn’t realistic.
There’s no clear record of what payments were for.
Co-shareholders disagree about whether withdrawals were authorised or fair.
You sell the business or bring on an investor and the accounts don’t make sense.

If you’re not the only shareholder, “drawings” without a clear agreement can also look like one person taking value out of the company unfairly.

This is where having clear rules in a Shareholders Agreement can protect everyone involved, because it can set expectations about founder compensation, approvals, and what happens if someone takes money out incorrectly.

Documenting Director Loans Properly

If you’re going to treat withdrawals as a loan, you’ll usually want to document key terms such as:

The loan amount (or how it will be calculated).
Interest (if any) and when it accrues.
Repayment dates or triggers (for example, “repay within X months” or “repay when dividends are declared”).
What happens if the company needs the money back urgently.

It’s also important to get tax advice on loan terms. For example, depending on the situation, issues like charging a market rate of interest, potential FBT exposure (where benefits are provided in connection with employment), and how/when the account is later “cleared” can all affect the tax outcome.

This is especially important if your company might later have:

More shareholders,
External lenders, or
Plans to sell (where clean financial records matter).

If you’re unsure, don’t stress - this is a common stage where getting legal and accounting advice early can save you from having to “rebuild” your records later.

How Do You Choose The Best Way To Pay Yourself?

There isn’t one perfect answer for every business. Most owner-directors use a combination of methods over time.

To choose the best approach for paying yourself as a company director in New Zealand, it helps to think through a few practical questions.

Questions To Ask Yourself (And Your Accountant)

Do you need stable personal income? Salary may suit you better than dividends-only.
Is the company consistently profitable? Dividends rely on profits/retained earnings and solvency.
Do you have co-founders or other shareholders? You’ll want strong governance documents to avoid disputes.
Do you want to reinvest for growth? Taking too much out too early can slow your business down.
Are you planning to raise capital or sell? Clean documentation and a consistent approach matters.

A Common “Balanced” Setup For Small Businesses

Many small businesses land on something like:

A modest salary to cover living costs and keep PAYE predictable, plus
Dividends when the company has profits and the solvency test is clearly met, and
Minimal or tightly controlled drawings (ideally documented and reconciled regularly).

The right structure also depends on your legal foundations. For example:

Your Company Constitution can impact how decisions are made and what rights attach to shares.
A Shareholders Agreement can help you avoid disputes about who gets paid what (and when).
A written Directors Service Agreement or Employment Contract can clarify expectations if you’re actively working in the business.

If you’re setting up these documents for the first time, or you’re updating them as the business grows, it’s worth getting them tailored. Generic templates often miss the exact issues that cause disputes later (especially around founder pay and decision-making).

Key Takeaways

Paying yourself as a company director in New Zealand isn’t just a tax decision - it also involves company law, record-keeping, and protecting your business as it grows.
A salary/wage is usually the cleanest, most predictable option, but it comes with PAYE and payroll admin.
Director fees can be suitable for governance-focused work, particularly where directors aren’t all doing day-to-day operations, but they should be documented clearly and you should confirm the right tax treatment with a qualified tax adviser.
Dividends are paid to you as a shareholder and must comply with the Companies Act, including the solvency test.
Shareholder drawings/director loans can be practical short-term, but they need careful records and (ideally) written terms, and you should get tax advice on how they’re treated.
Strong legal foundations - like a Company Constitution and Shareholders Agreement - make it much easier to pay yourself in a way that stays fair, compliant, and scalable.

If you’d like help setting up the right documents and structure so you can pay yourself confidently (and stay protected from day one), you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.

Tax-Efficient Ways To Pay Yourself As A Company Director In New Zealand