Do I pay tax on Drawings?

Taken money out of your business this year and wondering if you'll be taxed on it? This video explains why drawings aren't taxed, why profit is, and how a company's profit is usually taxed through a shareholder salary.

We show it step by step in Xero: coding drawings and seeing that the profit doesn't change, then posting a year-end shareholder salary journal. We compare sole traders and companies, work through a simple example with $100,000 of profit and $60,000 of drawings, and finish with two things to watch: putting money aside for tax (including provisional tax) and keeping your shareholder current account from going overdrawn.

A shareholder salary should reflect the work you do for the company, and is usually set after the year ends. Tax on it isn't taken out when it's paid, so it's due as terminal tax after your personal tax return (the dates depend on whether you have a tax agent). If you're paid a regular wage through payroll, PAYE applies instead.

Chapters
0:00 Introduction
0:50 What are drawings?
1:22 What is a shareholder salary?
1:53 Drawings in Xero
3:47 How is the profit taxed?
4:38 Year-end shareholder salary journal in Xero
5:57 Example with simple numbers
6:37 Two things to watch

Disclaimer:

This video is provided for general training and educational purposes only. The information reflects the presenter's understanding and interpretation of the topic as at the date and time of publication. Other views and interpretations may exist.

Rules, regulations and legislation are frequently amended or revised. The content should therefore be considered only in the context of the requirements and information available at the date and time of publication and may no longer be accurate or applicable when viewed.

The content does not take account of your individual circumstances and should not be relied upon as professional advice. Before acting on any information discussed, seek advice from a suitably qualified professional who can assess your specific situation.