Company Tax Obligations

Directors should be aware of their company’s responsibilities in relation to the payment of remuneration to directors.  If the laws are not complied with, the company may not be entitled to tax deductions for amounts paid.

A company must withhold Pay-As-You-Go (PAYG) withholding tax in respect of director’s fees paid to an individual director, whether their services are provided as an executive of the board or as a non-executive director.  A company is required to withhold from a payment to an individual for their services as a director at the time that the amount is paid.  If there is constructive payment, for example, where a director requests the company to pay an amount due to them to another person or entity, or where the company applies or deals with an amount on behalf of the director, then withholding tax must be deducted at the time that the amount is made available to the director.  It is important to note that these rules also apply to persons who, while not holding the title of ‘director’, act in the position of director of a company.

Unincorporated companies are also required to comply with the PAYG withholding rules where they make certain payments to members of the committee of management of the company, or to persons who perform the duties of such members.

There are some exceptions to the PAYG withholding rules, for example, where the receipt of a director’s fee is exempt income in the hands of the director.

New laws were recently introduced that result in a company being denied an income tax deduction for the payment of director’s fees where the company has not complied with the PAYG withholding rules. These rules relate to ‘non-compliant’ payments and apply where a company either:

• fails to withhold an amount from a payment; or
• where, after withholding the amount from the payment, the company does not report the amount to the Australian Taxation Office (ATO).

These rules apply from 1 July 2019.

Directors also need to be aware of the Director Penalty Regime.  Where a company does not meet its PAYG withholding obligations, the ATO may seek to recover amounts personally from directors.   This regime also extends to a failure to meet superannuation guarantee obligations.

There are a number of other tax and related obligations to consider where a company pays director’s fees to an individual in respect of services provided to the company, as follows:

• The company must pay superannuation guarantee contributions in respect of payments of directors’ fees. The rate of superannuation guarantee for the current year ending 30 June 2022 is 10%.
• The company must ensure that it complies with the Fringe Benefits Tax legislation in respect of non-cash benefits provided to directors.
• Payments of directors’ fees and tax withheld must be reported on the company’s Business Activity Statements (BAS).
• Processing and filing must generally be done via Single Touch Payroll, otherwise the company must provide information to directors such as providing payment summaries.

There may also be obligations in respect of workers compensation and payroll tax; the rules vary from State to State.

If you would like to find out more, or you need assistance with your tax obligations in relation to the remuneration of directors, please contact our office on (08) 7078 3505.

By Jennifer Jones – Tax Manager – Venture Private Advisory