From 1 July 2019, changes to the law for the tax-deductibility of payments of Directors’ fees took effect. Failure to comply with these changes will prevent the payments from being a tax-deductible expense because
the tax office considers them “non-complying payments”.
If an individual takes drawings from the organisation with the intention to declare these as wages or Directors’ fees the individual must be registered as an employee of the organisation under the Single Touch
Payroll system. Otherwise, the organisation paying them can’t claim a tax deduction.
For the payment to be tax-deductible, an employment declaration must be completed and lodged with the Australian Tax Office (ATO) before the first payment is made. Payments of this nature are subject to Pay As You Go (PAYG) Withholding, Superannuation Guarantee (SG) requirements and possibly state-based Workcover declarations (exempt for Directors in Queensland).
The correct amount of withholding tax (previously known as group tax) must be withheld by the payer. If the payer of the wages or Directors’ fees fails to pay the tax withheld to the ATO, those payments may become the personal liability of the Directors.
Superannuation Guarantee (SG)
Super guarantee (SG) payments must be made to complying superannuation funds or retirement savings accounts (RSAs) by the quarterly due dates, which is 28 days after the end of each quarter.
All employee’s wages (including Directors’ fees) are subject to SG – currently 10% of gross wages.
If the superannuation payment is missed, future payment of that contribution will not be tax-deductible and a Superannuation Guarantee Charge (SGC) is levied. The ATO must be advised of this via the lodgement of a SCG Statement.
The levy is calculated to include:
- SG shortfall amounts;
- interest on those amounts (currently 10%);
- an administration fee of $20 per employee, per quarter
If you have any concerns around employer and employment tax or superannuation, please do not hesitate to contact NBC for further information or assistance.