This is a very common question among company directors and business owners who already have their own company or trust and are used to receiving contract income through those structures.
In Australia, a director of a company is treated as a common law employee of that company in relation to their director duties. This means any director’s fee must be recognised as personal income of the individual director. It cannot be reclassified as contract income and paid to the director’s separate company or to a trust.
While it is sometimes possible for contractors and business owners to provide services and receive contract income through their company or trust, this treatment does not apply to director duties. A director cannot act as a contractor to the same company for their role as a director, and they cannot issue an invoice from their company or trust for director services.
Even if the director instructs the company to pay the director’s fee to their company or trust bank account, the Australian Taxation Office will still treat that amount as personal income of the director. The paying company must still meet its employer obligations, including payg withholding, superannuation guarantee, and other compliance requirements.
Incorrectly paying director fees to a company or trust instead of the individual can create compliance risks for both the company and the director, including penalties and additional tax exposure.
If you are a company director, business owner, employee, or contractor and are unsure whether income should be paid to you personally, to your company, or to your trust, it is important to get this right from the beginning. Contact Investax to ensure your company and trust structure is compliant and aligned with your long-term tax and business strategy.
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