Director Bonuses
CoggerGurry • May 12, 2023
It’s not an uncommon strategy for companies to resolve to pay director fees or director/employee bonuses in the current financial year but not physically pay them until the following financial year.
The aim of this is a degree of tax deferral, whereby a company commits itself to pay director fees or bonuses in the current financial year and accordingly claims a tax deduction.
However, it does not pay the amount in that year but the following year. A deduction is claimed, but the company incurs no expense.
What of the ATO’s position? To claim a deduction in the current 2022/23 financial year, there must be a definite liability to pay the amount in question, which must arise on or before 30 June.
This can be achieved by the company passing a properly authorised resolution by this date.
Those amounts must be paid in the following months and at least by the end of the following year.
When those amounts are paid, the standard PAYG rules must be complied with for a deduction to be claimed.
Start Your Year-End Payroll, Tax And Employee Leave Planning Now The end-of-year holiday period can be make or break for your business. Whether you’re gearing up for a rush or planning a shutdown, the key is early planning for payroll, tax and super, alongside careful compliance with workplace laws.  Start by checking whether any year-end paydays will fall on public holidays or during your closure. If so, you’ll need to bring the pay run forward so staff are paid before bank cut offs, and tell employees about any temporary date changes in writing. While the ATO generally allows lodgement and payment on the next business day when a due date falls on a weekend or public holiday, that doesn’t extend to paying wages late. Report each pay run through Single Touch Payroll (STP) on or before payday, including any brought forward payments you’re processing before year-end closure. Keep your PAYG withholding and BAS lodgements on track. If you’ll have difficulty meeting due dates, contact your tax adviser and the ATO early to discuss options. Don’t overlook super guarantee (SG) contributions on wages and paid leave taken over the break; annual leave and public holiday pay are part of ordinary time earnings for SG purposes. October to December quarter super must be received by employees’ funds by 28 January, so pay early to allow for bank processing times and so you don’t trigger the SG charge, interest, penalties and loss of deductibility. If you provide year-end bonuses or staff gifts, process bonuses through payroll and withhold tax, and consider whether FBT applies to functions or presents. The minor benefits exemption may cover low cost, infrequent items, but good records are essential. Remember that full-time and part-time employees who would normally work on a public holiday are entitled to their base rate for ordinary hours if they don’t work. You can ask employees to work public holidays, but requests must be reasonable and employees can refuse on reasonable grounds. If they do work, apply the correct penalty rates or time off in lieu under their award or agreement. Where a public holiday happens during an employee’s annual leave, it counts as a public holiday, not a leave day. For holiday shutdowns, you can only direct employees to take annual leave if an applicable award or registered agreement allows it, usually with advance written notice. Where staff don’t have enough leave, many awards allow leave in advance or unpaid leave by agreement; make sure to document any agreement in writing. Check whether leave loading applies to annual leave taken over this period, and ensure your payroll system calculates it correctly.
PAYDAY SUPER - Next step for payday super: legislation introduced to Parliament The government’s payday super reforms have taken another step towards implementation with the introduction of legislation to Parliament. Requiring employers to pay employee super contributions on payday, the reforms are designed to ensure that employees benefit from more frequent and earlier super contributions that grow and compound over their working life and reduce instances of unpaid super. Contribution timeframes are now measured in “business days” rather than “calendar days”, and employers will have 7 business days to make contributions. The legislation still needs to pass through both the House of Representatives and the Senate before it becomes law, but you shouldn’t wait to start planning. Recognising that employers need time to deploy, test and embed changes in their payroll systems and business processes, the ATO has released a new draft Practical Compliance Guideline that outlines its proposed compliance approach for the first year of payday super (starting 1 July 2026). It plans to use a risk-based framework where employers will be categorised as at low risk, medium risk or high risk of not meeting their payday super obligations. What’s next? Start preparing now. Review your payroll systems and processes to ensure they’re ready for payday super by 1 July 2026; consider whether more frequent super payments could have cash flow implications for your business that you need to act on; and look for alternatives if you use the SBSCH, as it will be closed from 1 July 2026. Planning ahead will help you be compliant with the law and make a smooth transition. Keep an eye on developments as the legislation progresses through Parliament and as the ATO finalises its compliance guideline. Changes could still be made before the reforms take effect.
Medicare Levy What’s the difference between the Medicare levy and the Medicare levy surcharge? Many people getting their tax notice of assessment wonder why they see amounts for the Medicare levy and Medicare levy surcharge. Here’s how it works. Medicare levy The Medicare levy is a compulsory charge that helps fund Australia’s public healthcare system. Almost all Australians pay this levy, which is 2% of your taxable income. The levy is generally withheld from your pay by your employer throughout the year, so you may not notice it until tax time. It’s important to note that having private health insurance doesn’t exempt you from paying the Medicare levy; it only affects your liability for the Medicare levy surcharge. In certain limited cases, such as if you’re a low-income earner, a foreign resident or have a medical exemption, you may qualify for a reduced rate or full exemption. Medicare levy surcharge The Medicare levy surcharge (MLS) is an additional charge designed to encourage higher-income earners to take out private hospital insurance, reducing the strain on the public healthcare system. The MLS isn’t automatically withheld from your income, but is calculated when you lodge your tax return. You may be liable for the MLS if your income exceeds the MLS threshold and you, your spouse and your dependent children don’t all have an appropriate level of private patient hospital cover for the entire income year. The surcharge rates vary based on your income tier, beginning at 1% for singles with 2025–2026 income over $101,000 and families with income over $202,000. Your income for MLS purposes includes several components beyond your taxable income, like reportable fringe benefits, total net investment losses and reportable super contributions. If you have a spouse, their income's also considered. Private health insurance To avoid the MLS when your income's over the threshold, you need an appropriate level of private patient hospital cover. Singles need a policy with an excess of $750 or less, and couples or families need a policy with an excess of $1,500 or less. Your policy must cover you, your spouse and all dependants for the full income year to avoid the surcharge. Keep in mind that extras-only cover (such as for dental or optical) and travel insurance don’t qualify as private patient hospital cover for MLS purposes. Please note that if you didn’t have private hospital cover from the year you turn 31 you will be liable to pay the lifetime health cover loading to your health insurer.
