How to Fix 3 Years of Incorrect Director Loans (Avoiding Tax Penalties)?

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butterpixeljason

New Member
Hello everyone,

In Australia.

I need help to fix this issue and save as much money as possible.

Here’s a brief summary:

I own and run a carpentry company.

An accountant from H&R Block gave me bad advice. They told me not to pay myself a salary and super, but to take money as a director loan. This was set up for the last three years, and I wasn’t told about the problems with this method. I’ve since learned this is a common mistake.

This became a problem when I wanted to close the carpentry compayn and start a building company. But I can’t close the company until the director loans are paid back. The money is gone because I used it for daily living costs for myself and my family.

I use Xero. For the 2025 year, I’ve gone back and changed the entries from director loans to salary.

My questions are:

Is it true that I can only fix the previous two years of company tax returns?

What is the best way to solve this while paying the least tax?

This might sound silly, but why can’t I go back in Xero and change the 2023 and 2024 entries from director loans to “gifts” from the company to me? I thought gifts aren’t taxed in Australia.

I know the easiest way is to pay the money back, but $300,000 is a lot to find.

If you have been in this situation, I’d appreciate any advice on how you got out of it. It’s very stressful for me and my family.

Thanks in advance.
 
Companies usually can't just give things to their directors as a gift.
I'd suggest looking at treating it as a franked dividend instead. This can probably be done as a book entry, without actually moving money. If you can spread it out over a few years, that might help lower the tax.
 
Hey there, accountant here! If you don't already have one, find yourself an accountant and get some solid advice. You're not gonna find the right answers from just a tax preparer or scrolling through Facebook!
 
I'm an accountant. The advice from H&R wasn't great, but it's something you can handle. Just find an accountant who is part of a CA, CPA, or IPA firm near you to help figure out a plan.
 
Can’t do gifts… just changing the description in consent work either. I am assuming if the company hasn’t been claiming wages as a deduction it’s had a rather large profit each year. If so… it should have a heap of franking credits. Put a Div 7a loan agreement in place and start paying dividends to yourself each year to reduce the loan. As mentioned… why not use this company for the building business? If not just leave it dormant and only declare dividends each year. This isn’t advice and you should speak to an accountant but it is fixable… if done correctly.
 
Hey mate,
I'm an accountant, so let's be direct: gifts aren't allowed they won't work!
If no Division 7A agreement was signed, things get tricky. Check when tax returns were lodged and review the paperwork.

Bottom line: find someone local who can help. It really shouldn't be too confusing, and there are likely tax efficient strategies to ease the burden.

All the best!
 
I did not read the full post. I have general accounting knowledge. I am not a tax agent. Find a good accountant. Your current situation is due to not doing that. Most advice here will be worse than H & R Block. So far, many comments show accounting knowledge. That surprised me.

Providing a location might allow a referral.
 
Honestly, H&R Block and those big tax places like ITP? I think they're just awful. I wouldn't even tell a friend making minimum wage to go there.

For a business, you really need to find a good accountant who gets the details trusts, company setups, all that. Sure, it'll cost you a few thousand, but trust me, you'll save way more in the long run.
 
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