Mr Taxman
Change the way you feel about taxes.
Get informed and discover what the taxman doesn't want you to know.
Sharing it with Australia, Mr Taxman is a regular Woman’s Day columist and TV finance commentator
  • click to visit Mr Taxman on Twitter
  • click to visit Mr Taxman on FaceBook
  • rss

Time of year to sort out the company loan account and directors' fees

Jun 09, 2011

Tax Commissioner Michael D'Ascenzo this week warned directors of private companies about claiming deductions for directors fees where amounts may remain unpaid by the end of the following income year.  The warning also serves as a timely reminder for any company director loan account issues that are outstanding prior to 30 June.

Unpaid directors' fees clampdown

Earlier this year the ATO released a Taxpayer Alert 2011/4 with respect to the deductibility of unpaid directors' fees. Whilst not a ruling in itself, Taxpayer Alerts are intended as an 'early warning' to taxpayers and their advisers of significant tax planning issues or arrangements that the ATO has under risk assessment or about which it has concerns. The ATO view regarding taxation treatment of directors fees, bonuses is contained in Taxation Ruling IT 2534

To qualify for a deduction a company must, before the end of the year of income, become definitively committed to the payment of a quantified amount of directors fees, bonuses or other such payments.

The ATO have identified an arrangement where companies resolve to definitively commit to pay an amount for directors fees but qualify the resolution so that payment is not made until an unspecified time having regard to future cash flow.

If you are thinking of using such an arrangement to claim amounts that you are never intending to be fully paid out then be very, very careful. Whilst you think that you are smart by having a mismatch of deductions and income because fees aren't returned as income until received, the ATO will have a different view.

It is important to note that the ATO are not concerned with normal business practice where a company passes a resolution that creates an unconditional commitment to pay directors fees and the payment occurs within a reasonable time period which could extend outside the immediate year of income. They are only concerned where there are artifical arrangements created. 

Rest assured the ATO will closely look at these arrangements and any others that attempt to take advantage of the income tax provisions contrary to the intention of the law. If you are unsure about your own circumstances should seek independent advice or apply for a private ruling from the ATO.

Fix up those outstanding company director loan accounts!

If you are a company director who has been taking money out of your company during the year but haven't repaid it then you either need to repay the amount in full prior to 30 June or you will need to declare it as income and have the appropriate amount of PAYG tax paid in the June quarter BAS.  The ATO frown on any amounts outstanding unless there is a formal loan agreement in place with a set repayment schedule.  Interest needs to be charged at the appropriate rates on any loan arrangement.

Tags: Company taxDeductionsEmployersSmall Business

Author: Mr Taxman

Comments

Post a New Comment

Media Availability

Are you interested in booking Mr Taxman for a speaking engagement or requesting his viewpoints for an article?

comments-rhsLatest Comments

  • "Not with me Timothy. Sorry."

    By: Mr Taxman at May 17, 2017 8:15PM

    Post: Received your tax refund yet?

  • "Hi I would like to get my tax refund done I'm pretty sure I did it with guys 2014 "

    By: timothyhughes at May 15, 2017 12:47AM

    Post: Received your tax refund yet?

  • "Just wondering if you are in trades via the forex and at 1st July you a still in those trades this would not be considered trading stock as suggested by the ATO as the profits/losses have yet to be..."

    By: Chris at May 11, 2017 5:40AM

    Post: Foreign currency trading

  • "nice work thank you"

    By: AFL Sports news at May 08, 2017 10:01AM

    Post: Marriage

  • "My ex-partner and I broke up at the end of August 2016 and I am now a sole parent who receives Family Tax Benefit. My ex-partner has not does his tax return for the 2015/16 financial year and..."

    By: Melanie at May 05, 2017 12:26AM

    Post: Marriage