[Question] HOW TO WRITE-OFF CC MEMBER CREDIT LOAN ACCOUNT & TAX CONSEQUENCES

[karinnorth]

Hello Forum members - I am new to the Form and look forward to "meeting" other members! I have a question for all ye learn'ed folk.......

I am a 50% / 50% member of a CC. I paid for a building on the entity's property and therefore now have a R1.9 million credit loan account (CC owes me). Only other member has no loan account but has lifetime usufruct of the CC's property. Property is currently being sold for R2.5 million and being split equally between both members (for my contribution and for other member's usufruct) and is the CC's only asset. My portion of proceeds (R1,25 mill) will be deducted from my loan account leaving a balance of R650,000 which I have agreed to waiver as the CC has no further assets and will be deregistered after the sale and settlement.

How is the "write-off" of R650,000 entered in the books?

What tax implications from SARS relating to the member's waivered credit loan account?

To anyone out there willing to advise me, I thank you in anticipation. Karin

[Dave A]

I once had to wind up a cc where I had to write off the loan account owed to me.

At the time (1998), the impairment was treated as a capital loss in my hands and could only be offset against a capital profit in my hands in the same tax year!
(As all I had was losses to show for that year, it was particularly painful setback).

[dellatjie]

@Dave, why can the capital loss only be set-off in the same year? Usually one can carry over a capital loss? Is this because of legislation applicable in 1998 and not anymore?

[CLIVE-TRIANGLE]

Simply convert the loan to equity, provided the other member has no issues.
The other alternative is to do nothing.

[Dave A]

Is this because of legislation applicable in 1998 and not anymore?

It certainly was the case at the time. Can individuals really carry capital losses over tax periods nowadays?