I'm working as an IT contractor in Australia and I'm about to move from a sole trader model to a Ltd company. I'm trying to work out the most tax effective way of paying myself in my own company, for which I am the only employee.
I've heard it's some balance between paying myself a salary and paying myself dividends. I followed the "Ricardo" example on this site:
I understand that if your marginal tax rate is lower than the company tax rate of 30% then you will get a tax refund to make up the difference, but it doesn't seem clear what would happen if your marginal tax rate is higher than the 30% company tax rate:
"If Ricardo was in a higher tax bracket he may not have been entitled to a refund of any of the franking credit, he may even have to pay additional tax."
It seems a bit vague. Would I have to pay the extra tax on the dividends, or would the tax I pay be capped out at the 30% which was already paid before the dividends were handed out? If it's not capped at 30% is there any benefit from splitting my income into salary and dividends at all, seeing as I would pay the same amount of tax in total anyway? Is the only advantage that I'm not forced to pay 9.5% superannuation on the total income but just on the salary itself?