Quick answer
A company can't simply pay your personal expenses. If a private company pays a director's or shareholder's private bills, the ATO can treat the amount as a Division 7A deemed dividend unless it's repaid or put on a complying loan by the company's lodgment day. The fix is to record it, then have your accountant classify each payment as wages, a dividend, a repayment or a loan.
Key points
- A company is a separate entity: its money isn't your money, even if you own every share.
- Personal bills paid by a private company can be treated as an unfranked deemed dividend unless fixed by lodgment day.
- The fix is a sequence: list it, stop it, classify it with your accountant, then set a regular pay rhythm.
- Lenders read company bank statements, and school fees and groceries stand out.
- Reimbursing genuine business costs you paid personally is a different, legitimate thing.
It happens quietly. The card on file for the kids’ school fees is the company one because it was the one in your hand. The weekly grocery shop goes through the business account during a busy fortnight. A holiday deposit, a phone bill, a tyre for the family car. Months later you notice, and wonder whether you’ve done something wrong.
You probably haven’t done anything that can’t be tidied up. But it does need tidying, and sooner is easier than later. Here’s what’s going on and what to do.
Can a company pay a director’s personal expenses?
Not as a free pass. A company is its own legal entity, and its money belongs to the company, even if you’re the only director and the only shareholder. Two things follow.
For tax, the ATO can treat a payment by a private company that benefits a shareholder or their associate as a Division 7A payment. Its guidance says a payment like this can be treated as an unfranked dividend unless it’s repaid or put on a complying loan by the company’s lodgment day for the year it was made. Lodgment day is the earlier of the company’s tax return due date and the date it actually lodges, so it can arrive sooner than you expect.
For company law, directors must act in good faith in the best interests of the company and for a proper purpose (Corporations Act s181). Using company money for private benefit, without a proper basis such as wages, a dividend or a documented loan, is the kind of thing that duty is aimed at. ASIC’s director pages are the starting point if you want the plain-language version.
None of this means a single stray grocery shop ends in disaster. It means the entries need a proper home.
What counts as a personal expense, and what doesn’t?
The line is usually clearer than owners fear.
| Usually a business expense | Usually personal |
|---|---|
| Stock, wages, rent for business premises | Household groceries and bills |
| Work-related phone and software | School fees, childcare, tutoring |
| Business-use vehicle costs, with records | Family holidays, personal travel |
| A reimbursement to you for genuine business costs you paid personally | Home mortgage or rent payments |
| Reasonable wages paid through payroll | Gifts and entertainment for family |
Mixed items, such as a phone or vehicle used for both, normally need a sensible split and records. If you paid a genuine business bill from your own pocket, the company can reimburse you with receipts as proof. That’s a different matter from the company paying your private costs.
How do you fix it? A step-by-step plan
- Stop it first. Put personal spending back on a personal card or account today. Don’t wait for the perfect system.
- List what’s already gone. Export the company bank statement for the whole financial year and highlight every personal payment: date, amount, what it was for. An hour with a highlighter is cheaper than rebuilding it later.
- Check the date that matters. Ask your accountant for the company’s lodgment day for this year and for the previous one. That deadline decides how many options you have.
- Let the accountant choose the treatment. Depending on your circumstances, each amount might be:
- repaid into the company account
- treated as wages, with PAYG withholding and super, if that suits your pay arrangement
- treated as a dividend, if the company has profits and has declared one properly
- placed on a complying written loan, which brings yearly repayments and interest
- Write it down. Minutes, a loan agreement or payroll records. An undocumented fix isn’t much of a fix.
- Set a pay rhythm. The reason it happened is usually that there was no regular way for you to be paid. Our guide to paying yourself as a sole trader or director covers setting one up.
Every tax treatment here depends on your company’s profits, history and structure, so confirm with your accountant before you move any money around.
An illustrative example
A solo director who runs a small landscaping company realises that over a financial year she has paid roughly $14,000 of private costs from the company account: school fees, a family trip deposit, and groceries. Her accountant lists it, notes that lodgment day is still some months away, and gives her options. She repays part from her personal savings, and the rest goes on a written complying loan. She also starts paying herself a fixed amount fortnightly through payroll. The next year’s statements show no personal spending at all.
This is an example only. Your accountant will work out what suits your numbers.
What are the common mistakes when cleaning this up?
- Journalling it away at year end. Moving the amounts into “sundry” or “owner’s drawings” without a decision about what they really are just hides the problem. The accountant needs to classify each amount.
- Repaying with company money. Paying the company back using funds the company itself paid you doesn’t fix anything. The repayment needs to come from you, or from a properly recorded wage or dividend.
- Leaving it until the return is lodged. Once the lodgment day passes, the options narrow. Lodgment day can be earlier than the due date if your accountant lodges early, so ask before the return goes in.
- Signing a loan agreement and forgetting it. A complying loan carries yearly repayments. If you miss one, the shortfall can be treated as a dividend. Put the dates in your diary.
- Treating the car or phone as all-business. If a family member drives the work ute on weekends, the private part needs a sensible treatment. Keep a simple logbook or usage record.
A short monthly habit helps more than any one-off fix: once a month, scan the company statement for anything that doesn’t belong, and move it the same day.
Why do lenders care?
This is the part many owners don’t see coming. When you ask a lender for finance, it will usually look at several months of company bank statements to see how the business really trades and how the owner is paid.
Personal payments stand out. A lender seeing school fees, supermarket spending and a mortgage repayment leave the company account may wonder how much of the “profit” is really available to repay a loan, whether there’s an undocumented loan from the company, and how tidy the books are. A director loan account that’s been growing also changes how your accounts read. Our page on borrowing money from your own company explains how that affects your next loan, and the Division 7A guide covers how a complying loan works.
None of this rules you out. A clear explanation, a clean few months and an accountant’s note can make a big difference. If you’re not sure how your statements look from the outside, try our money-mixing check.
What if it’s more than a few payments?
If years of personal spending have run through the company, don’t try to fix it alone. Go to your accountant now, bring the statements, and ask what the position is for each year, including whether earlier years’ lodgment days have passed. If the company is struggling, or you might need to borrow soon, say so, because that affects which fix is sensible. Our guide to untangling personal and business finances before borrowing lays out a clean-up order that suits lenders as well.
If you’re planning to borrow while you tidy up, let us know where you stand. We can talk through how a lender is likely to read your statements, and whether it makes sense to apply now or after a clean quarter.
Where does a business loan fit?
A business loan isn’t a way to cover personal spending or repay yourself, and it shouldn’t be used that way. Lending here is for business purposes only. But a tidy structure helps you borrow for genuine business needs such as stock, equipment, a fit-out or working capital. Cleaning up first often means a lender can see the real strength of the business.
Getting your finances in order, then borrowing with confidence
Most owners who find personal bills in the company account feel a bit embarrassed. We hear this regularly, and it’s very fixable. If you’re planning to borrow for the business once things are tidy, we’re happy to start the conversation early.
Enquiring takes about 60 seconds, and there’s no credit check when you enquire, so your credit file isn’t touched just for asking. We don’t send your details to a pile of lenders; a real person looks at your situation and calls you to talk it through. All we ask is that you fill in the form accurately, including anything messy about how the company has been paid, so we can find the right option first time.
Frequently asked questions
Is it illegal to pay personal expenses from a company account?
It isn't a crime to make the payment by mistake, but it has consequences. Directors must act in good faith in the company's interests (Corporations Act s181), and the tax law can treat the payment as a dividend. Deliberately taking company money for private use is more serious. Talk to your accountant about how to treat what's already happened.
What is a deemed dividend?
It's the ATO's way of treating a payment or loan from a private company to a shareholder or associate as if it were a dividend, taxed in your hands, even though no dividend was declared. It's generally unfranked, so no tax credits come with it. Confirm how it applies with your accountant.
I paid a personal bill from the company account by mistake. What now?
Don't ignore it, and don't quietly delete the entry. Pay the money back into the company account, or tell your accountant so it can be recorded as a loan, wage or dividend. Doing it before the company's lodgment day gives the most options.
Can the company pay for something that's partly business, like a phone or a car?
Yes, the business portion can be a legitimate company expense. Mixed-use items usually need a sensible split and records of use. Your accountant will tell you how to treat the private part, including any fringe benefits tax angle.
Will a lender notice personal spending in my company statements?
Often, yes. Lenders usually review several months of statements and look at what leaves the account. Regular school fees, groceries or mortgage payments are easy to spot and prompt questions about how the owner is paid.
Does this apply to sole traders?
Not in the same way. A sole trader and the business are the same legal person, so drawings aren't a loan from the company. The tidy-up still matters for lenders, though, which is where our money-mixing check helps.