Taking money out of the company whenever you need it isn't a salary, it's a loan account, and SARS treats an overdrawn one as a taxable benefit. Most directors don't realise they're borrowing from their own business until the tax consequences show up.
A company is a separate legal entity from its owner, even a sole director. Pulling cash out without running it through payroll doesn't make it your money by default, it makes it a loan from the company to you. If you take out more than you've put in, that Director's Loan Account (DLA) runs into a debit balance, and SARS monitors these closely.
If your company charges you no interest, or less than the official rate (currently repo plus 1%), SARS treats the difference as a benefit. That can be taxed two ways: as a fringe benefit under the Seventh Schedule, meaning PAYE on the interest you saved, or, if you're also a shareholder, as a deemed dividend attracting Dividends Tax at a flat 20%.
There's also a Companies Act dimension. Section 45 only permits a company to provide financial assistance to a director if it passes the solvency and liquidity test, meaning assets exceed liabilities and debts can be met as they fall due over the next twelve months. Drawing cash when the business is tight on cash flow isn't just poor practice, it can breach your fiduciary duty as a director.
An overdrawn DLA is usually a symptom of entangled business and personal finances. Separate bank accounts and cards are the first step, since a bookkeeper who has to untangle personal groceries from business transactions every month is slow, expensive, and error-prone. Cloud accounting paired with receipt-scanning software then lets your team flag non-business expenses as they happen rather than at year-end.
This is the part most directors miss. If you draw R60,000 a month via the loan account instead of salary, that R720,000 a year never appears on your income statement, which inflates your reported net profit by the same amount. That false profit distorts your pricing, since you're not factoring your own labour cost into your margins, and it inflates your corporate tax bill, since the company pays 27% tax on profit that was never really available to distribute. Moving your drawings to a structured salary lowers your tax liability and gives you an accurate profit figure to actually manage the business by.
Separate personal and business accounts fully. Distinct bank accounts and cards, no exceptions.
Formalise your remuneration. Move consistent drawings onto payroll as a structured salary.
Charge interest on any loan balance. At or above the official rate, to avoid a deemed benefit.
Run the solvency and liquidity test before drawing. Confirm the company can meet its debts before approving further drawings.
The official SARS interest rate, currently repo rate plus 1%. Charging less triggers a taxable benefit.
Not inherently, but it must comply with the Companies Act's solvency and liquidity test, and untaxed benefits arising from it carry real tax consequences.
Formalise a portion as salary going forward, charge market interest on the remainder, and work with your accountant on a repayment or restructuring plan.
Treating the business account as a personal ATM is one of the more expensive habits a director can carry. Formalise your remuneration, charge proper interest, and keep the accounts separate. For more on director compliance, see our blog.
Need expert tax and accounting support? The Compliance Clinic helps South African businesses stay compliant, reduce tax liabilities, and grow with confidence. Contact us today | View our services
A brief from the lead partner — what changed at SARS this month, one practice note, one decision-trigger to watch. Unsubscribe in one click.
