Demand-ranked tax questions · Business · Question 06 of 20
Should a company director take a salary or dividends?
There is no universal winner. A genuine director salary is employment remuneration, normally deductible by the company and subject to PAYE. A dividend is paid from after-tax profits and normally carries 20% dividends tax for an individual shareholder. Cash drawings are not automatically salary or dividends and can create a shareholder loan balance.
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The points that decide the answer
- Salary affects company profit, personal taxable income, payroll and often UIF or benefit calculations.
- Dividends require available profits, a valid company-law process and correct dividends-tax declarations.
- A director loan account must be reconciled. Unsupported withdrawals can produce accounting, tax and governance problems.
- The sensible mix depends on profits, cash flow, personal income, retirement funding and the company's obligations.
A practical way to handle it
- Reconcile the director loan account first.
- Prepare current management accounts and a cash-flow forecast.
- Model company tax, PAYE and dividends tax together.
- Document payroll and dividend decisions before making payments.
Common mistakes
- Coding every withdrawal as salary at year-end
- Declaring dividends without solvency checks
- Leaving a growing debit loan unexplained
What to keep on file
Management accounts, payroll, bank statements, loan ledger, board resolutions and dividend declarations.
Source and scope
Based on current SARS guidance, reviewed on 28 August 2026. This is general information, not tax advice. Rates, thresholds and outcomes depend on the tax year and your facts. Regulated submissions and advice are handled through registered partners where required.
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