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Accounting, Cash Flow Essentials, GST, Managing a Business

ATO Directors’ Fees: What Are & How To Pay Them (Everything You Need to Know)

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Paying directors’ fees can often seem complicated, especially when you’re trying to get your business fully compliant with ATO requirements. Many business owners have similar concerns: should directors be paid? And if so, what’s the right way to handle those payments? It’s important to get this right because directors’ fees can be claimed as a tax deduction, helping you to reduce your business’s overall tax burden. However, paying directors’ fees isn’t as simple as just transferring money. There are a few steps you need to follow, and the ATO has specific tax rules for how to report and claim these fees. If you skip these steps, you could miss out on valuable deductions or run into compliance issues. In this guide, we’ll explain the rules around directors’ fees, how they should be paid, and the right way to claim them for your business. What Are Directors’ Fees? Before diving into the rules and procedures, it is important to understand how directors can receive payment. Typically, directors are compensated in one of the following ways: Salary Directors’ fees Dividends Each method rewards directors for their work but involves different tax implications and compliance requirements. Why Do Companies Pay Directors’ Fees? Companies pay directors’ fees to ensure that board members are appropriately compensated for their leadership, insight and strategic decision-making. This remuneration structure ensures transparent and balanced compensation for directors’ valuable input while providing flexibility in both financial management and tax planning. It also helps companies avoid the stringent rules of Section 7A of the Income Tax Assessment Act, which creates a more tax-efficient way for directors to earn income. Essentially, directors’ fees help align the company’s financial goals in a way that is consistent with and beneficial to the directors’ legitimate access to the company’s funds. How Are Directors’ Fees Structured And Paid Under Australian Law? Executive Directors In Australia, the structure of directors’ fees is based on the director’s level of involvement in the company. For executive directors involved in day-to-day business, fees are often paid in addition to their regular salary and must include mandatory superannuation contributions. This setup ensures fair compensation for both their executive duties and board responsibilities. Non-Executive Directors Non-executive or non-executive directors, who focus on strategic oversight rather than day-to-day management, usually receive only a director’s fee. However, these fees must also include superannuation contributions in accordance with the Superannuation Guarantee (SG) requirements set out in Australian law. All payments made to directors – whether executive or non-executive – must comply with corporate governance rules and Australian tax laws. This includes the correct calculation and payment of Pay As You Go (PAYG) withholding tax and reporting to the Australian Taxation Office (ATO) via Single Touch Payroll (STP). In addition, the company’s board must formally approve all director fees and record them in meeting minutes, ensuring that the remuneration is consistent with the company’s constitution and shareholder agreements. By following these rules, companies maintain transparency when remunerating their directors, meet legal obligations and adhere to strong corporate governance standards. Director Fees And Salaries: What’s The Difference? Many business owners often confuse director fees and director salaries or wages. It is important to understand this distinction because each is treated differently when it comes to taxes, legal obligations and retirement. Director Fees: These are payments made solely for their role as a director on the board. Directors may not have any other day-to-day work or management duties in the company. This is especially common for non-executive or independent directors who focus solely on governance, not performance. Director Salary or Wages: When a director also serves in an executive or operational position (such as CEO, managing director or other senior role), they receive a regular salary or wage for those duties. These payments are processed in the same way as any other employee’s salary. Sometimes, directors may receive both types of payments – a director’s fee for board work and a salary for management responsibilities. For example, a managing director in a private company often earns both. Always record these separately in your company’s accounts to keep things clear and consistent. Also Read: Sole Trader vs Limited Company in Australia: Key Differences & Which Is Better How Are Director Fees Determined? The process for determining director fees depends on the structure, size, composition of your company and whether it is privately held or publicly listed. Private And Small Companies: In small or private businesses, the board usually determines the amount and how it is paid. This may also be set out in the shareholders’ agreement or company constitution. Directors can set their own fees, provided they are consistent with these governing documents. Public Companies (e.g. ASX-listed): For listed companies, shareholders must approve the total pool of director fees during the AGM, as required by the Corporations Act and the company’s constitution. It is important to ensure that director remuneration is consistent with company policies, market standards and is clearly disclosed to shareholders (and sometimes the public). A transparent and consistent process helps prevent conflicts and supports long-term governance integrity. Formalising this framework in your constitution or shareholders’ agreement is not only best practice – it also protects your board from future disputes as the company expands or new directors join. How to Pay Director Fees: A Practical Guide When paying director fees – whether for yourself as a founder or for non-executive directors – it’s important to follow the correct legal and tax steps. Get Approval: Review your constitution or shareholders’ agreement to confirm the appropriate approval process. Then, pass the necessary board or shareholder resolutions. Set The Amount: Decide the amount of the fee and how often it will be paid. Process Through Payroll: All director fees should be passed through Payroll, even for owner-directors of the business. Register for PAYG withholding if not already done. Report to The ATO: Include director fees in your Single Touch Payroll (STP) reporting and issue an income statement or PAYG payment summary. Think About Superannuation: If super applies, make

Accounting, GST, Managing a Business

What Is The Tax Free Threshold in Australia: What You Should Know

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The tax-free threshold determines how much income you can earn in a financial year before you start paying tax. For Australian residents, the current tax-free threshold is $18,200, which means you don’t pay tax on the first $18,200 of your income. Any income earned above this limit is taxed at a progressive rate. This forms the basis of Australia’s progressive tax system, where higher income attracts higher tax rates. What Is The Tax-Free Threshold? If you are an Australian resident for tax purposes for the whole financial year, you will not pay any tax on the first $18,200 you earn. This amount is known as the tax-free threshold. Adjusted Tax-Free Threshold If you become an Australian resident for tax purposes during part of the financial year, your tax-free threshold will be adjusted accordingly. In this case, your threshold will be lower than the full amount available to residents for the whole year. Your adjusted tax-free limit is divided into two parts: A fixed base amount of $13,464 An additional $4,736, which is divided proportionally based on how many months you were in Australia during the income year, including any months you visited. The Australian income year runs from 1 July to 30 June of the following year. To calculate your adjusted limit, count the months from the date you became a resident to 30 June. How The Tax-Free Limit Works Australia operates a progressive tax system, which means that your tax rate increases as your income increases. The tax-free limit forms the starting point of this system. Here’s how it works: Any income over $18,200 is taxed at progressively higher rates. You pay no tax on your first $18,200 of income. For example, if you earn $30,000 in a year, the first $18,200 is tax-free, and you only have to pay tax on the remaining $11,800. This system ensures that people with lower incomes keep a larger share of their earnings, while those with higher incomes contribute a larger share of the country’s tax revenue. Eligibility For The Tax-Free Threshold To claim the full tax-free threshold you must be an Australian resident for tax purposes throughout the financial year. If you become or cease to be a resident during the year, you are eligible for a pro-rata tax-free threshold. For part-year residents, your threshold is calculated as follows: A flat amount of $13,464 Plus up to $4,736, adjusted for the number of months you were an Australian resident. This proportional system ensures that people who live in Australia for part of the year still receive a fair share of tax-free benefits. How to Claim Your income can come from one or more sources, such as an employer, a government agency, or work done under an Australian business number. If you are an Australian resident for tax purposes, you can claim the tax-free threshold each financial year. You can decide whether to claim the tax-free threshold on the Tax File Number (TFN) declaration you provide to your payer (including Centrelink). If you choose to claim it: Your payer will withhold tax when your income exceeds $18,200. You won’t pay tax on income up to $18,200 Find out what to do if you have multiple jobs or change jobs during the financial year. You may also like: Non-Commercial Losses: What Are & How to Defer Them? (A Guide) If You Are an Australian Resident For Part of The Year If you are an Australian resident for part of the financial year, you can claim the part-year tax-free threshold. The part-year tax-free threshold has two components: A flat rate of $13,464 An additional amount of up to $4,736, which is calculated pro-rata based on how many months you were in Australia during the financial year, including the months you were in. If you are a non-resident for the whole financial year, you cannot claim the tax-free threshold. This means you pay tax on all income you earn in Australia. Find out more about the tax-free threshold for newcomers to Australia. Your Income And The Tax-Free Threshold You can have income from multiple payers at the same time. Payers can include employers, government agencies, or work done as a sole trader. You can choose whether or not to claim the tax-free threshold ($18,200) on your earnings. If you claim the tax-free threshold: You won’t pay tax on income up to $18,200 Your payer will withhold tax when you earn more than $363 per week, $726 per fortnight, or $1,573 per month. When to Claim The Tax-Free Threshold If you have more than one payer, you usually claim the tax-free threshold from only one payer. Typically, you claim it from the payer that pays you the highest salary or wages. You can claim income from two or more payers if you: Have a second or multiple jobs Work part-time and also receive a taxable pension or government allowance Operate under an ABN as a contractor, sole trader or other business structure. Tax Is Withheld From All Sources of Your Income When you file your tax return, we review all earned income and the tax withheld. Sometimes, the total tax withheld may be different from your year-end tax liability if: Your income is $18,200 or less, so you can claim the tax-free limit If you had too little tax withheld, you may owe a balance. If you had too much tax withheld, you may get a refund Depending on your situation, you can request a change to the tax withheld from your income. This helps align it more closely with your year-end tax liability. Conclusion Understanding and claiming your tax-free allowance can have a big impact on your tax liabilities and the money you take home. By following the right steps and constantly reviewing your finances, you can avoid unexpected tax problems, maximize your take-home pay, and reduce the likelihood of paying a tax bill at the end of the year. For advice customized to your individual circumstances, consider consulting a registered tax agent or

Accounting

How Far Back Can the ATO Audit You? Can They Be Avoided?

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An ATO tax audit is an official examination conducted by the Australian Taxation Office (ATO) to review a business’s financial statements, tax returns and overall compliance with Australian tax laws. The audit ensures that businesses are complying with their tax obligations, accurately declaring income, expenses and deductions, and complying with tax regulations. Depending on the risk level, an ATO audit can include a simple compliance review or extend to a full-scale tax investigation, requiring detailed scrutiny of financial documents. The scope of an ATO audit depends on factors such as the size of the business, industry and financial activity. Businesses with a high risk profile or irregularities in their tax filings are more likely to face an in-depth audit. The ATO relies on data-matching technology to uncover inconsistencies, which can trigger targeted reviews. Maintaining accurate tax records and reporting is important for businesses to remain compliant and reduce audit risks. Understanding an ATO Audit Let’s break down what an ATO audit really means in simple terms. Think of it as the tax office checking whether your claims are accurate. The ATO checks that the income you claim and the deductions you claim are correct, and that you have supporting evidence. It’s important to distinguish between the levels of review: ATO review: This is often a quick, automated check on specific claims that seem unusual. It may include requesting receipts or additional details. ATO audit: This is a full review of your financial records. The ATO will closely examine your tax return, looking for inconsistencies in multiple areas. Adjustment: This is the outcome, not the process. If the ATO finds errors during a review or audit, it issues a revised assessment adjusting your tax liability. This level of scrutiny can affect anyone, from employees claiming work-related expenses to homeowners, small business owners and cryptocurrency investors. How Far Back Can an ATO Audit Go? The ATO can review tax records from two to four years ago. For individuals with simple returns, this is usually limited to two years. For businesses or people with more complex financial matters, the ATO can examine up to four years, covering everything from asset sales to dividend payments and PAYG reporting issues. The ATO often examines over several years if it sees a consistent pattern or discrepancy. Key triggers for a multi-year audit include: Sudden Income Changes: A large change in income from year to year for no apparent reason may not attract attention. Unverified Asset Sales: Failure to report income from property or share sales can result in serious penalties. Significant Deduction Variances: Claiming very different deductions over the years, especially if they don’t match your income or lifestyle, can trigger an audit. Large Deductions or Credits: Claiming large deductions or credits without the right documentation can raise concerns. Inaccurate Business Records: Incomplete or mismatched records compared to your tax return can alert the ATO. Anonymous Reports: Tips from third parties can trigger an audit. High-Risk Industries: Industries such as property, construction and self-employment are audited more frequently. Next Read: ATO Directors’ Fees: What Are & How To Pay Them (Everything You Need to Know) Late Tax Filings: Regularly late tax filings can indicate attempts to conceal information, leading to a multi-year review. Foreign Assets or Income: If you have foreign income or assets, the ATO may investigate your reporting. Social Media Activity: Posts about expensive expenses or undeclared income can lead to a full ATO investigation. Cash-Heavy Businesses: Businesses that deal largely in cash often face greater scrutiny due to potential underreporting. Real-World Situations And Consequences Understanding the rules is one thing, but the risks become more tangible when you look at real-life examples. Honest mistakes can trigger an ATO review more easily than you might think. Example 1: An employee in a new sales position claims $10,000 in car expenses but lacks a logbook to justify the business-use portion. The ATO considers this unusually high for their role, which triggers a review. Example 2: A homeowner refinances a rental property loan, taking out $50,000 to buy a car. They continue to claim 100% interest on the entire loan, which is incorrect. The ATO identifies the discrepancy by matching the data with the bank. Example 3: A small business owner claims that all fuel and meal expenses are entirely business-related, even though they use the vehicle for personal trips and often go out to eat with family. If the ATO finds errors, they issue a revised assessment reflecting the revised tax and interest. Penalties can also apply, ranging from 25% of the deficit for negligence to 75% for deliberate disregard of tax laws. And what if you ignore an ATO audit letter? Ignoring it is the worst option. The ATO will act on the information it has, possibly rejecting all claims and issuing a default assessment with penalties. This could lead to legal action and debt recovery. For guidance, read our detailed resource on what to do when you receive an ATO audit letter. ATO Audit Penalties The ATO understands that tax laws can be complex and that real mistakes can be made. If you handle your tax affairs carefully and voluntarily report any errors, you may be able to avoid a penalty (although this is not a guarantee). Many taxpayers take advantage of the ATO’s Safe Harbour rules, particularly where they have followed the advice of registered tax agents or made a good faith effort to do so. However, if there are errors or deliberate non-compliance, the penalty can be significant: Failure to exercise reasonable care: 25% of the tax shortfall Reckless conduct or repeated omission: 50% of the tax shortfall Willful evasion or deliberate omission: 75% of the tax shortfall Plus a daily compound general interest charge (GIC) on any unpaid amount The ATO may reduce this penalty if you voluntarily disclose errors before any audit begins. They also take into account factors such as your past compliance and personal circumstances when determining the final penalty. Key Points While no one likes

Accounting

MYOB vs QuickBooks vs Xero (Which One Is Better) 2026

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Inaccurate payroll and bookkeeping are often a challenge for many businesses. From hiring new employees to handling daily tasks like managing expenses or paying vendors, companies are constantly looking for ways to save time by automating their workflows. While some may be concerned about the initial cost, investing in the right software can be one of the smartest business decisions you can make! With so many accounting software options available, choosing the one that best suits your business needs can be overwhelming. Cloud accounting offers benefits like easy accessibility and robust security, allowing you to work anytime, anywhere, while streamlining processes and increasing efficiency compared to traditional desktop programs. When comparing QuickBooks Online with Xero and MYOB, each has strengths and weaknesses in payroll management, expense tracking, and other accounting functions. In this article, we will explore the key differences between these three widely used accounting software solutions. MYOB, Xero, And QuickBooks Overview MYOB, Xero, or QuickBooks; Choosing the right accounting and finance compliance software largely depends on factors such as business type, location, and team size. These three leading solutions – MYOB, Xero, and QuickBooks – each offer unique features designed to meet different business needs. MYOB: MYOB is a well-established Australian brand known for its comprehensive compliance tools and reliable local support. It offers a variety of features to manage financial operations, including core accounting functions such as invoicing and expense tracking, advanced options such as payroll processing, and Australian tax compliance. Xero: Xero is a cloud-based accounting solution chosen by small and medium-sized businesses. It offers an interactive interface and multiple functionalities, including online invoicing, inventory monitoring, bank reconciliation, and payroll management. QuickBooks: Developed by Intuit, QuickBooks is a global cloud accounting platform recognized for its automation features and scalability. It offers a user-friendly dashboard, expense tracking, invoicing, and supports multiple currencies for international transactions. In terms of online traction, Xero leads with 55.14% click share, followed by MYOB with 17.15% and QuickBooks with 8.03%. These figures highlight Xero’s strong position in Australia and its widespread use for accounting solutions. MYOB vs Xero vs QuickBooks: Which Accounting Software Should You Choose? Choosing the right accounting software depends on your business, industry size, and how much emphasis you place on compliance, automation, and user-friendliness. 1. Ease of Use And Automation Australian SMEs should evaluate how easy the software is to use on a daily basis, how much automation it offers and how it integrates with other finance-related workflows. MYOB is best suited for accountants, bookkeepers and businesses that need advanced tax reporting tools. MYOB offers detailed financial controls and adaptive tax reporting options for businesses of any size, but has a steeper learning curve. Xero Ideal for digitally-focused SMEs, Xero is a cloud-based solution that ensures accurate financial records and fast audits. It works well for multiple users, allowing finance teams to collaborate in real time with automated billing and expense management. QuickBooks Great for SMEs in the retail, hospitality and service sectors that want scalability and automation. QuickBooks offers a simple interface, allowing users to efficiently manage accounting tasks while providing comprehensive product features. Also Read: What Is The Tax Free Threshold in Australia: What You Should Know 2. Price Comparison And Cost-Effectiveness It is important to understand the cost-effectiveness of this bookkeeping and finance platform. Comparing pricing models and potential hidden fees can help you decide which option is best for your business. MYOB MYOB Solo: AUD 11/month MYOB Business: Starting at AUD 31/month MYOB Business Pro: AUD 63/month MYOB AccountWright: Starting at AUD 70.50/month MYOB AccountWright Plus: AUD 150/month Xero Starter: AUD 35/month Standard: AUD 70/month Premium: AUD 90/month Premium 10: AUD 95/month QuickBooks Easy Start: $29/month, suitable for sole traders and new businesses Essentials: $65/month, includes features like bill management Key Features of MYOB vs Xero vs QuickBooks for Australian Tax Compliance Feature MYOB Xero QuickBooks ATO GST & BAS Reporting Provides complete tools for calculating GST and preparing Business Activity Statements (BAS), enabling direct submission to the ATO. Automates GST tracking and BAS preparation, allowing seamless lodgment to the ATO. Helps manage GST and BAS reporting, offering features that simplify compliance with tax obligations. Single Touch Payroll (STP) Fully supports STP compliance, allowing real-time reporting of payroll details to the ATO. Integrates STP functions, making it easy for businesses to report payroll information directly to the ATO. Offers STP capabilities, enabling straightforward submission of employee payroll data to the ATO. Superannuation Contributions Handles superannuation calculations and payments, keeping businesses aligned with Australian superannuation regulations. Automates superannuation tracking and contributions, ensuring businesses meet their superannuation obligations. Provides superannuation management tools, helping businesses stay on top of their superannuation responsibilities. Bank Feeds & Reconciliation Delivers automatic bank feeds and reconciliation, simplifying transaction matching and record accuracy. Provides live bank feeds and reconciliation tools, helping businesses maintain up-to-date financial records. Offers bank feed integration and reconciliation features, supporting accurate and efficient record-keeping. Invoice & Expense Tracking Lets businesses track invoices and expenses efficiently, supporting precise financial reporting and compliance. Simplifies invoice and expense management, promoting accurate financial tracking and reporting. Provides tools to manage invoices and expenses, assisting businesses in keeping clear financial records. Cloud-Based Access Provides cloud access, allowing users to view and manage financial data from anywhere, improving collaboration. Fully cloud-based platform that lets users access financial data anytime, anywhere, enhancing flexibility. Uses cloud technology to grant access to financial information from multiple locations, supporting business agility. Mobile App Support Offers mobile apps, letting users manage finances and access data on the go. Supports mobile applications, enabling remote management of financial tasks. Includes mobile apps to help users oversee financial activities from mobile devices. Conclusion MYOB, Xero, and QuickBooks all offer effective and user-friendly cloud accounting solutions. Each platform offers different features, and depending on your business size, required functionality, and budget, any of these options may be right for you. However, Xero emerges as the ideal choice for most businesses. With unlimited user access, an intuitive interface, advanced automation tools, and a