ATO warns private companies about unpaid directors fees
Tax Commissioner Michael D’Ascenzo has warned directors of private companies about claiming deductions for directors fees where amounts may remain unpaid by the end of the following income year.
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.
Mr D’Ascenzo said that the ATO had 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.
“We are concerned that some companies may be using this arrangement to claim amounts that are never intended to be fully paid out. As the fees aren’t returned as income until received, this practice results in a mismatch of deductions and income” Mr D’Ascenzo said.
“We 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 ”
Mr D’Ascenzo said there may be some artificiality about some of these arrangements and the ATO is examining these and any others that attempt to take advantage of the income tax provisions contrary to the intention of the law.
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