Non-executive director (NED) fees present a deceptively complex bookkeeping problem. The income is straightforward — a periodic fee for board service — but the obligations that flow from it (PAYG withholding, superannuation guarantee, FBT) and the personal services income rules that apply when a NED routes their fees through a related entity are consistently mishandled. For bookkeepers acting for companies that pay NEDs, and for bookkeepers acting for NEDs themselves, the rules are not optional complexity — they are hard obligations with serious penalties for non-compliance.
NED Fees as Personal Services Income
Personal services income (PSI) rules under Part 2-42 of the ITAA 1997 apply to income that is mainly a reward for the personal efforts or skills of an individual. NED fees are quintessentially PSI — they are paid in consideration for the individual director's judgment, expertise, and personal participation in board governance.
Where a NED directs their fees to a personal services entity (PSE) — typically their own company — the income is still assessable to the NED individually unless the PSE passes the results test or one of the other business tests in the PSI regime (s.87-15 to s.87-35 ITAA 1997). In virtually all cases, NED fees will not satisfy the results test (because the NED is not engaged to produce a specific result) and the PSI rules will apply. The ATO has addressed this in multiple private binding rulings and in its published guidance on PSI.
The practical consequence for bookkeepers acting for the NED's company: the company cannot retain NED fee income. The entire amount received must be paid to the NED as a salary, with PAYG withheld, and superannuation guarantee applied. Any expenses claimed by the company against the NED income are limited to those directly related to earning the income.
PAYG Withholding on Director Fees
Under reg 350-205 of Schedule 1 to the Taxation Administration Act 1953, an entity that pays a director fee to a director of a company must withhold PAYG from that payment. This obligation applies regardless of whether the director is an executive or non-executive, full-time or part-time, resident or non-resident.
The withholding rate for resident NEDs who have provided a TFN is determined by applying the marginal tax rate schedule to the annualised equivalent of the payment. Where the NED is paid quarterly and earns, say, $40,000 per annum in director fees, the withholding is calculated on the annualised basis ($40,000) at the applicable marginal rate. Most NEDs on substantial boards will have annualised fees in excess of the $135,000 threshold, attracting the 45% marginal rate plus Medicare levy.
Where the NED has not provided a TFN, the no-TFN withholding rate of 47% applies under s.14-15 of Schedule 1 to the TAA 1953. This cannot be reduced by any estimation of marginal rate or variation.
PAYG withholding amounts must be reported and remitted to the ATO on the company's BAS or instalment activity statement, depending on the company's withholder category.
Superannuation Guarantee Obligations for NEDs
The superannuation guarantee applies to NED fees. This is confirmed by s.12(3) of the Superannuation Guarantee (Administration) Act 1992, which provides that a person who is paid to perform duties as a member of the executive body of a body corporate is taken to be employed for SG purposes. The SG Act uses its own definition of employment — it is not limited to the Fair Work Act definition — and specifically extends to directors.
From 1 July 2025, the SG rate is 11.5% of each NED's ordinary time earnings. NED fees paid at regular intervals (quarterly, monthly) are ordinary time earnings for SG purposes. The SG contribution must be paid to a complying superannuation fund by the quarterly due dates (28 October, 28 January, 28 April, 28 July), and failure to pay on time triggers the Superannuation Guarantee Charge — which is not tax-deductible under s.26-95 of the ITAA 1997.
Where the NED is directing fees through a PSE, the SG obligation falls on the company paying the fees (the payor) in the first instance. If the NED subsequently draws a salary from the PSE, the PSE has a secondary SG obligation on the salary — care must be taken to avoid double-counting SG on the same economic income.
FBT on Benefits Provided to NEDs
Non-executive directors who receive non-cash benefits — for example, car parking near the board venue, airline lounge memberships, electronic devices, or board dinners — may generate Fringe Benefits Tax (FBT) obligations for the paying company. The FBT year runs from 1 April to 31 March, and the FBT rate for the 2026 FBT year is 47%.
The key FBT question for NED benefits is whether the benefit is provided "in respect of the employment" of the NED. Under the Fringe Benefits Tax Assessment Act 1986, a director is an employee for FBT purposes under s.136(1), so NED benefits fall squarely within the FBT regime. The minor benefit exemption under s.58P (benefits with a GST-inclusive value under $300 that are not provided regularly and frequently) may apply to isolated small benefits, but regular board meeting dinners, recurring travel credits, or lounge memberships will exceed this threshold in most cases.
Bookkeepers maintaining company accounts should establish a process for identifying and documenting non-cash NED benefits at the time they are incurred, rather than attempting to reconstruct them at 31 March. The FBT liability is the company's, not the NED's.
Board Pack Expenses and Deductibility
Companies providing board packs — printed or digital materials for board meetings — may incur costs for document preparation, printing, secure file sharing platforms, and boardroom hire. These costs are deductible as expenses of the company incurred in the course of carrying on its business.
For a NED personally, board meeting travel expenses are deductible under s.8-1 of the ITAA 1997 to the extent they relate to the income-earning activity (board service). Where travel is partially private and partially board-related — for example, where the NED combines a board trip with a holiday — the deductible portion must be apportioned. The ATO's substantiation rules under s.900-30 require receipts for individual expenses of $300 or more, and a travel diary for travel of more than 6 nights away from home.
Reconlink for NED Fee Administration
Reconlink streamlines the bank reconciliation and BAS preparation for companies with NED payment obligations. Automated coding rules can be configured to recognise periodic NED fee payments and route them to the correct salary or director fee account, triggering the appropriate PAYG and SG coding. The BAS export captures PAYG withholding remittances accurately, and the audit trail provides the documentary record needed when the ATO reviews director fee withholding compliance as part of its annual employer obligations data-matching program.