Directors of private companies: tax return lodgment

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. The ATO is due to commence lodgment reviews for company directors identified shortly and 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 has 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.

If you have wrongly included your director’s fees in the salary and wages category of the tax return instead of the directors 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 through a tax professional.

You will generally need to wait until you receive notification that your original tax return (or any amendments) have 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. Individuals generally have 2 years from the day after the original notice of assessment was sent to submit an amendment to their tax returns.

However, in this instance, you’ll need to act fast, the ATO will soon be commencing lodgment 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. It will also be reviewing the “connected entities” of these company directors. According to the ATO, those directors that come forward voluntarily to make a disclosure will have certain penalties reduced.

For example, if you prepare and lodge your own returns but are not able to make the 2020-21 lodgment 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 (ie $1,110).

According to the ATO, this penalty is only applied in isolated cases of late lodgment and a warning will be issued either by phone or in writing that you’ve failed to lodge before the penalty is applied. Although it is still good practice to either lodge on time, or barring that, contacting the ATO to inform them of the circumstances of your lodgment 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 (ie in cases of natural disaster or serious illness). This can be done simply via phone, or through your tax professional. 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?

Whether you’re a director of a private company or just need some help completing your tax return for 2020-21 income year. We can help. Under the tax professionals lodgment program, we may be able to get you more time to lodge. Contact us today to take advantage of more time.