If you own and run your own NZ company, deciding how to pay yourself is one of the most important tax decisions you make each year. You can pay yourself a salary (with PAYE deducted), take dividends, or a combination — and each option has different tax, ACC, and KiwiSaver implications.
Most NZ owner-operators pay themselves a mix of salary and dividends. Salary is a company expense (reduces taxable profit at 28% rate), but triggers PAYE, KiwiSaver, and ACC obligations. Dividends come from after-tax profit and carry imputation credits. The optimal strategy typically involves paying a salary up to ~$70,000 (staying in the 30% personal bracket), then taking remaining profit as imputed dividends. Get specific advice from an accountant — the ideal split depends on your total income and goals.
Your Payment Options
Option 1: Salary (Shareholder-Employee Salary)
You pay yourself a regular salary, just like any employee. The company:
- Deducts PAYE from your salary
- Files employment information (EI) with IRD
- Pays employer KiwiSaver contributions (3% minimum, subject to ESCT)
- Pays ACC employer levy on your salary
Tax effect: The salary is a deductible expense for the company — it reduces company profit taxed at 28%.
For you: The salary is taxable personal income at your marginal rate.
Option 2: Dividend
The company pays you a share of after-tax profit as a dividend. No PAYE is deducted — the company has already paid 28% tax.
If the dividend carries full imputation credits (28/72 imputation ratio), you:
- Include the grossed-up dividend in your personal income
- Receive a credit for the 28% company tax already paid
- Pay top-up tax only if your personal rate exceeds 28%
- Receive a refund if your personal rate is below 28%
No PAYE, no KiwiSaver on dividends, no ACC on dividends.
Option 3: Drawings / Shareholder Current Account
You take money out of the company informally, recorded in a shareholder current account. The current account tracks what the company owes you (or you owe the company).
If the account is in credit (company owes you), you can draw funds tax-free up to the balance. If in debit (you owe the company), IRD may apply fringe benefit tax or treat it as a deemed dividend.
PAYE Obligations for Shareholder-Employee Salaries
If you pay yourself a salary, you must:
- Put yourself on payroll (even if you are the only employee)
- File Employment Information (EI) with IRD each payday (via myIR or payroll software — Xero, MYOB, PayHero)
- Deduct PAYE at the applicable tax code (M, ME, or your situation)
- Pay PAYE to IRD by the 20th of the following month (small employers)
- Deduct and remit KiwiSaver contributions
Shareholder-employees are not required to pay themselves fortnightly. You can set a salary and pay it quarterly or even annually — as long as the PAYE is filed and paid on schedule.
ACC on Shareholder Salary
ACC’s Work levy applies to self-employed income and shareholder-employee salaries. If you pay yourself a salary through your company, ACC will levy both:
- The company (Employer levy on your salary)
- You personally (Earner levy deducted from your salary via PAYE)
Dividends are not subject to ACC.
This means dividend payments are genuinely more efficient for ACC purposes — but you lose the deductibility benefit at the company level.
The Optimal Mix — A Framework
If your company’s net profit is $150,000:
| Strategy | Tax outcome |
|---|---|
| All salary ($150k) | Personal income tax at 33–39% on amounts above $70k — fully deductible to company |
| All dividends (after 28% company tax) | Company pays $42,000 tax; you top up if personal rate > 28% |
| Mixed: $70,000 salary + $80,000 profit as dividend | Salary taxed at up to 30%; remaining $80k in company at 28% |
General rule of thumb:
- Pay yourself a salary of $70,000–$100,000 (keeping yourself in the 30% or lower brackets)
- Leave the rest in the company at 28%
- Pay dividends in low-income years or to spouse/partner shareholders at lower rates
- Adjust each year based on actual profit
Shareholder Current Account
The shareholder current account (SCA) is a running ledger of amounts owed between you and your company:
Adds to SCA (company owes you):
- Shareholder salary owed but not yet paid
- Personal expenses you paid on behalf of the company (reimbursements)
- Capital you contributed
Reduces SCA (you owe the company):
- Drawings taken (cash withdrawals)
- Personal expenses paid by the company on your behalf
If your SCA is in debit (you owe the company money), IRD may:
- Apply interest at the prescribed rate (FBT implications)
- Treat the balance as a deemed dividend (taxable)
Rule: Never let your SCA go into debit without proper documentation and interest charged.
Frequently Asked Questions
How do I set a “reasonable” salary if I am the only director?
IRD requires that a shareholder-employee’s salary be a “market rate” for the work performed — a salary you would pay an arm’s-length employee doing the same work. Paying yourself $1 to minimise PAYE is not acceptable. Most owner-operators set a salary in the $70,000–$120,000 range depending on their industry and hours.
Can I change my salary mid-year?
Yes — you can adjust your salary at any time. Update your payroll records and file the corrected EI with IRD. If you overpaid or underpaid yourself relative to profit, your accountant will reconcile this at year end.
Do I need to take a salary every fortnight?
No legal requirement for fortnightly payment. Many owner-operators accumulate salary in the SCA and draw it when needed. However, PAYE must be filed and paid to IRD on schedule regardless of when you physically receive the cash.