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The ATO has warned directors of private companies about claiming deductions for directors' fees where amounts may remain unpaid by the end of the following income year.

To qualify for a deduction a company must, before the end of the year of income, become definitively committed to the payment of a quantified amount of directors' fees, bonuses or other such payments.

The ATO has identified an arrangement where companies resolve to definitively commit to pay an amount for directors' fees but qualify the resolution so that payment is not made until an unspecified time having regard to future cash flow. The ATO is concerned there may be some artificiality about some of these arrangements and is examining these and any others that attempt to take advantage of the income tax provisions contrary to the intention of the law.

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