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Thread: Convert Personal Development Loan to Business Loan Account Loan

  1. #1
    New Member
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    Nov 2010
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    Convert Personal Development Loan to Business Loan Account Loan


    I took a personal loan from an "angel investor" to develop a product.
    As the money was a personal loan, I did not declare the money I used as income as I need to pay it back.
    The loan is attracting interest at the Prime Rate.

    I have now formed a company (pty ltd) to market/sell/service the product I have developed.

    What is the most tax effective way of getting the loan into the company as an expense?

    I have been told that I have two options:
    1. Take extra salary and pay the marginal rate on it and put the "deferred salary" into the loan account until it equals the amount borrowed.
    AND Charge SARS allowed interest on the unpaid amount.
    2. Sell the product into the company for the amount borrowed and pay CGT on the amount specified.
    AND charge interest on the unpaid amount as it will be in unpaid liabilities.

    Are these valid options or is there a LESS EXPENSIVE way of doing this?

    The problem being - none of the expenses incurred developing the product hit the new company - it was a personal (relationship based) loan.
    The reason I am asking this now, is that I am starting to get tentative probes from a company in a similar space and it looks like they want to buy control of the company, pay off the loan accounts and provide funding to get the product rolled out into the Middle East.

    What is my cheapest LEGAL route of getting this loan into the company???

    Please help URGENTLY - books are due at the end of the month... LOL!!


  2. #2
    Gold Member
    Join Date
    Mar 2012
    Thanked 381 Times in 298 Posts
    Probably the expenses you funded from the loan are at the least a mix pre-incorporation expenses, both operating and capital. These can be accounted for in the company even if they were prior to incorporation.

    Those entries would result in a credit to your loan account and assuming all of the expenses qualify, just charge the same interest and the same terms as you are paying.

    But you should get a qualified accountant to look at the actual nature of the stuff and see if and how it qualifies.

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