ATO reminder to proprietors of private companies
The Tax Office is also reminding private company owners that, under the tax law, private companies are prevented from making tax-free distributions of profits to shareholders and/or their associates.
Or, in layman's language: you must treat your private expenses separately from your company expenses.
How to avoid penalties when paying personal expenses
Taxpayers who fail to separate their personal and company money appropriately may incur penalties and have to pay more tax, since any company money used for personal purposes can be deemed to be an unfranked dividend in the individual's hands.
To avoid this, the Tax Office advises taxpayers to use one or more of the following options:
- pay back any money borrowed from the company before the date the company's tax return has to be lodged;
- set up a written loan agreement, which meets minimum interest rate and maximum term criteria, before the date the company's tax return has to be lodged, and make the minimum loan repayments each year; or
- ensure the company pays them an adequate salary, wage or dividend, and that they also then pay tax on that income in the normal way.
Please note : There is an amnesty available right now, until 30 June 2008, to fix any existing errors without needing to contact the Tax Office or incurring a penalty, basically as long as the error arose due to an honest mistake or inadvertent omission during the 2002 to 2007 income years.
As the the Tax Office states "If you've made an error in the past and you haven't fixed it, there's never been a better time than now to do so," so if you think you might be able to take advantage of this amnesty, contact us ASAP.