Tax Return Lodgement of Company Directors

The ATO has flagged a trend of private company directors either not lodging their tax returns or not reporting the correct amount of income received from the company in their tax returns. It encourages those taxpayers to either lodge their tax returns by the deadline of 31 October 2021 or request an amendment to their existing tax return through the appropriate channels (your tax accountant can help if you require assistance with amending a return). The ATO is due to commence lodgement reviews for company directors identified shortly, and it notes that those that voluntarily come forward may have penalties reduced.

As tax time 2021 draws to a close, the ATO has issued a reminder specifically to directors of private companies. It has noticed through data-matching activities that many directors of private companies have either not lodged their tax returns or have not reported the correct amount of income received from the company in their tax return.

Remember, any amounts that you derive as the director of a private company should be included under the “Allowances, earnings, tips, directors fees, etc.” category and not in the salary and wages category.

Did You Enter Director’s Fees Under Salary & Wages?

If you have wrongly included your director’s fees in the salary and wages category of the tax return instead of the director’s fees category, or have inadvertently forgotten to include the director’s fee entirely, an amendment can be lodged easily and quickly, either through ATO online services or with help from a medium or small business tax accountant.

You will generally need to wait until you receive notification that your original tax return (or any amendments) has been processed before lodging (another) amendment to avoid processing delays. If the amendment increases the amount of tax you owe the ATO, it will be treated as a voluntary disclosure.

When to Submit an Amendment to Your Tax Return

Individuals generally have 2 years from the day after the original notice of assessment was sent to submit an amendment to their tax return.

However, in this instance, you’ll need to act fast, as the ATO will soon be commencing lodgement reviews for company directors identified as not lodging their returns for either the current or prior years, and/or not reporting the correct amount of income. According to the ATO, directors that come forward voluntarily to make a disclosure will have certain penalties reduced.

Company Directors Failing to Lodge Tax Return On Time

If you prepare and lodge your own return but are not able to make the 2020-21 lodgement deadline of 31 October 2021, you may be liable for a Failure to lodge (FTL) on time penalty. The penalty is calculated at the rate of one penalty unit ($222) for each period of 28 days (or part thereof) that the return is overdue, up to a maximum of 5 penalty units (i.e. $1,110).

According to the ATO, this penalty is only applied in isolated cases of late lodgement and a warning will be issued either by phone or in writing that you’ve failed to lodge before the penalty is applied. However, it is still good practice to either lodge on time, or barring that, contacting the ATO to inform them of the circumstances of your lodgement delay.

If you’re unlucky enough to receive a FTL penalty notice, a remission can be requested either in full or in part where there are extenuating circumstances (i.e. in cases of natural disaster or serious illness). This can be done simply via phone, or through your accountant in Melbourne. Other penalties such as the general interest charge, shortfall interest charge, false or misleading statement penalties, etc. may also apply in circumstances where there is an increase in tax you owe the ATO and no voluntary disclosures have been made.

Need Help with Your Tax Return?

If you’re a director of a private company and you want your own tax return or your company’s tax return to be taken care by professionals, book an appointment with Alexander Bright today. You can also arrange a strategy session to learn more about our business taxation services and accounting services for small business and medium business clients.