Payroll tax and directors' wages
A company must declare taxable wages paid or payable for services provided to the company by a director or non-working director of the company.
A director or non-working director may also be an employee of the company. In this situation read the taxable wages section to understand your payroll tax obligations.
The information on this page only addresses wages paid or payable to a director or non-working director of a company.
What are directors' wages?
Directors' wages include:
Potential director wages
Directors’ wages may include amounts paid or payable for services provided to the company by a director of the company under section 46(2) of the Payroll Tax Act 2007 (PTA), even if paid or payable by:
- someone other than the company to a director
- the company to someone other than the director (for example, monies paid to a director’s personal entity for services provided to the company by a director of the business), or
- someone other than the company, to someone other than a director.
Read the wages paid by or to third parties page for more details about potential director wages under section 46 of the PTA.
How to declare directors’ wages
Wages paid to directors and non-working directors for services provided to your company must be included in the correct fields of your payroll tax returns.
For example:
- directors fees in the “Directors fees” field
- fringe benefits in the “Fringe benefits” field
- superannuation contributions in the “Employer superannuation contributions” field
- payments for terminating the services of a director in the “Termination payments” field
- allowances in the “Allowances” field, and/or
- net value of shares or options granted in the “Shares and options” field.
Why accuracy is important
It is important that you correctly declare payments to directors in your returns. Errors may result in the underpayment of payroll tax, which is known as a tax default.
Interest will be imposed on any underpayments. Your business may also be liable for penalty tax. Read the interest and penalty tax page for more details.
Always maintain relevant records and working papers showing how your figures were calculated. Records must be:
- retained for at least 5 years
- sufficient for a payroll tax liability to be properly assessed
- in English, or a form easily translated to English, and
- readily available to us if requested, for example as part of a payroll tax audit.
Voluntary disclosure
Contact us to make a voluntary disclosure if you have not declared all liable amounts in your monthly and/or annual returns, including previous financial years.
Voluntary disclosures attract a reduced level of penalty tax compared to cases where we identify an underpayment. Interest will still be imposed.
Non-compliance identified through our data matching activities will result in penalty tax and interest charges, in addition to any underpayments detected.
Common errors with directors’ wages
Payroll tax audits have found employers often fail to declare the following in their payroll tax returns:
- Amounts paid to a director’s personal entity for services provided to the company by the director of the company. Read the wages paid by or to third parties page for more details.
- Lump-sum superannuation payments for a director which is paid through the general ledger (not paid via the payroll system).