Set-off shareholders loan with property transfer (property in business name)

[SSS100]

Good day,
I need help with the following:

A company owes the shareholder an anount of xxxx (yes, this was a loan to the company and NOT part of the shareholders contribution to the company)

Now, the company owns a property and would like to find out find out if the shareholders loan can be "settled" / "off-set" by transering the property to the shareholder and write off the loan

Please note, loan amount is more that the value of the property. My thought was to "revalue" property to the same value as loan and do transfer

Please help

[CLIVE-TRIANGLE]

Hi SSS100
If the property is an investment property, you can have it revalued; in fact it is a requirement under IFRS. If it is not revalued it is to be depreciated. Such a revaluation, although recognised in the income statement, is not taxable.

However the problem in doing an off-set as you envisage, is that the company would be liable for capital gains tax on the disposal.

[SSS100]

Thanks Clive, for clarity. its a trading company and the property being land and buildings is not depreciated.
And was never revalued, the amount in books is the price is was purchased with 4 years ago

[CLIVE-TRIANGLE]

If you decide to do a set-off, there really only needs to be agreement by the shareholders. You will need a resolution at least, but quite possibly a special resolution.

Just to clarify, IFRS requires that if the property is held as an investment, in other words to earn rentals, it must be stated at valuation and must be periodically valued by a valuator. If a valuation is not practical or is too expensive, the property must be classed as part of property plant and equipment and must be depreciated.

If the property is held as an asset from where the company conducts business or manufacturing, then the latter requirement applies.

But a revaluation is not required to perform an off-set, only agreement by the members. The off-set will be a disposal and the value of the off-set less the cost price and disposal expenses will be the capital gain.

[Dave A]

Given that the transaction is not at arms length, SARS is going to want an evaluation (or 3) anyway - even if it might seem obvious that the sale is occurring at a higher value than fair market value.

[SSS100]

Eish, sars nightmares
thanks guys

[Dave A]

I regret yet another thought occurred - although this might only become an issue if we're talking about some pretty big numbers...

What are the chances SARS might look at donations tax issues if the transaction was too far in favour of the company?

[SSS100]

Another matter hey, it's not big numbers...property bought for 1.5M, loan amount 2.8M

[AliciaGeli]

I feel that you must contact a professional dealing in the real estate domain for this as he is the person who is completely updates by all the rules of the real estate domain.