drawings are not wages: why director loans go so bad, so often - and how to fix them

Drawings are NOT Wages

Too many directors treat drawings like free money—until the tax debt explodes, the loan account is under scrutiny and their accountant is left to explain it.

Every accountant has seen it. A director takes drawings throughout the year—no wages, no dividends, no worries—and then hits tax time with a massive surprise.

Suddenly, there’s a director loan on the balance sheet. The company ‘made money’ but can’t pay its tax. Cash is gone and they probably can’t pay the BAS.

It causes problems for failing businesses, but also for profitable ones. The company looks fine—until you realise the significant amount of hidden tax the directors can’t pay. Meanwhile loans in liquidation are treated as just that – repayable to the company liquidator.

Director loans are one of the most dangerous blind spots in small business accounting—and they’re exploding across Australian companies. In about 48% of ATO audits, loan accounts are identified that aren’t disclosed on the tax return—exposing both the accountant and their clients to risk.

The real problem? Directors often don’t understand that drawings aren’t wages. Accountants try to patch things up with Division 7A—but if it’s not done properly (and often it’s not), the loan compounds, the tax risk grows, and accountants get blamed when the director ends up in serious trouble.

In this session, Jarvis Archer (Business Reset) teams up with Peter Johnson (tax training guru) and Tony Vidray (experienced accountant) to break down how it all goes wrong—and how to prevent it.

We’ll walk you through the horror stories, the hidden traps, and the real-world solutions you can use with your clients right now.

Access the replay

What you will learn

1. The Tragedy of Mismanaged Loans

   • Loans in restructuring and liquidation – lose your company, lose your home

   • Why ‘drawings’ create tax debt directors don’t see coming

   • How they lead to directors paying themselves with the ATO’s money

2. Division 7A – The Rules

   • When loans trigger a deemed dividend—and how to avoid it

   • The accountant’s compliance duties: disclosure, agreements, and repayments

   • Common traps: trusts, no distributable surplus, and undisclosed loans

3. Practical Approaches to Difficult Clients

   • How to show clients the real cost of loans (and get them to listen)

   • Using a repayment spreadsheet to plan and recover

   • Smart strategies to move clients from drawings to payroll