The ATO has warned taxpayers of an “arrangement” where a private company claims a deduction for unpaid directors’ fees.

Under the arrangement, a private company makes a resolution before 30 June in relation to amounts payable to directors that reflect that the company is irrevocably committed to the payment. 

The company claims a deduction for the directors’ fees expense, but the actual payment is never made.  The Commissioner of Taxation said he was concerned that some companies may be using the arrangement to claim amounts that were never intended to be fully paid out.

Expect audit activity over the next few years.