What is the difference between drawings and wages

These rules are to eliminate tax avoidance. If you were to take drawings from a company — it would be classed as a loan or an unfranked dividend.

This is a highly legislated type of payment arrangement and there are many implications for the company involved. Dividends is another way you can be paid by your company. This is usually calculated from the profit available after tax. We understand. In an ideal world, we would all nail our business structure and financial processes from day one. But things change, and businesses evolve. What was the right option at a point in time, may not be into the future.

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Get directions. Kiwitax on LinkedIn. Kiwitax on Facebook. Home What is Better — Drawings or Wages? What is Better — Drawings or Wages? Share this. So tax hasn't been paid on it. A trust doesn't pay tax in its own right. It gives it to people in the family group and then they pay the tax for that trust.

You can also give it to another company or another entity as well from a trust. The trust doesn't pay tax, other people do and that's why you're taking drawings pre-tax. The most popular from a company is a salary. The most popular or easiest way from a trust is a drawing. With a company, the third way is dividends. Dividends is a payment of prior year profit.

So you pay tax on the profit in the company. Companies do pay tax unlike a trust and then you pay that out to the company shareholder the year after. With a trust, the third way is distributions. Which is a distribution of the trust's profit at the end of the year.