Director fees may be accrued and claimed as a tax deduction in the same financial year in which the company becomes definitively committed to paying them, even if the actual payment is made in the following financial year, provided the commitment is evidenced by a properly authorised resolution passed on or before 30 June.
The director does not derive the income until the fees are actually paid or otherwise made available, meaning the amount is assessable to the director in the year of payment, not the year of accrual.
Superannuation Guarantee (SG) contributions are only required to be paid once the directors’ fees are actually paid, as SG obligations arise when salary or wages are paid, not merely accrued. Accordingly, where directors’ fees are accrued at year-end but paid in the following financial year, the associated SG contribution is due based on the payment date, not the accrual date.
This treatment is consistent with Taxation Ruling IT 2534, which confirms:
- A deduction is available only where the company is definitively committed to paying a quantified amount before year-end.
- Directors’ fees are derived by the director on a cash basis (when paid or made available), even if the services were performed in an earlier year.
Practical compliance points
- Ensure the company constitution allows payment of directors’ fees.
- Pass a shareholder or properly authorised resolution before 30 June specifying the amount.
- Do not leave fees indefinitely unpaid, as this may result in the deduction being denied (see ATO scrutiny under Taxpayer Alert TA 2011/4).
- PAYG withholding and SG obligations arise when the fees are paid, not when accrued.
If you would like to discuss further please contact us:
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandco.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.au
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