Understanding Director’s Loan Account

Melbourne Accountant Advice On Drawing Money From Your Business

Managing company finances is best with the expertise advice and insights of a seasoned Melbourne Accountant.
In general, the process of borrowing money from your business for your personal use is a fairly straightforward. However, it’s an entirely different matter if the drawings are considered to be a major drain on the assets.
When it comes to running a company, it is important to keep in mind that it should be treated as a separate entity and making withdrawals for your own personal use comes with some complications.

What Is A Director’s Loan Account

If you are a director of a company and you want to use some money for personal purposes, it would be best to sit down with your Melbourne accountant to understand the implications. One of the things you need to discuss with your Melbourne accountant is the Director’s loan account.
What is it? If payments have been made to you as a director of a company that is not part of your regular remuneration and is not considered a company expense, this payment can be set against the director’s loan account. If there is an existing balance under this account, then payment can be set against the account without the need to worry about the tax implications.

However, if the said funds have been fully exhausted, the director is considered to be a debtor of the company. As your Melbourne accountant will point out to you, this shall have the following implications:

Corporation tax charge – S455

If the balance of the director’s loan account remains outstanding until the year end, this will lead to a tax charge on the company, which is called the S455. Such tax shall only apply to “close companies” or those with less than 5 directors or shareholders. For more information about this tax, ask your Melbourne accountant.

Benefit in Kind

The second implication is that it can trigger what is known as benefit in kind. Since an overdrawn loan account of a director is effectively considered an interest-free loan, this equates to a benefit, which pertains to the interest of the said loan.

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