There is nothing liquidators like more than reviewing the financial accounts of the company prepared by the company’s accountant and seeing a debit (asset) loan account. Often such loan accounts are due by a director of the company. Even more frequently, upon inquiry by the liquidator, it is due by a director who claims to know absolutely nothing about the ‘loan’.
Often various transactions associated with a director are put through a loan account rather than allocated to wages or directors fees to avoid the complications of PAYG tax, workers compensation and reporting requirements. The problem with this is that these sometimes frequent transactions can build up to a sizable loan account which is potentially recoverable by a liquidator.
To avoid this unfavourable outcome, advisors should ensure any benefits taken by a director, whether in the form of cash wages or benefits, are actually accounted for as ‘wages’. While this may increase PAYG tax and reporting implications, it will not only more accurately reflect the amount being drawn by the director in benefits, but also avoids the building up of a sizeable loan account.
Furthermore it will avoid having to argue with the liquidator regarding why the loan account should not exist, or even having to defend an action brought by the liquidator. Plus of course there is the small matter of not being able to afford to repay it anyway!