[Question] Directors' Debit Loan account

[antonnkramer]

Hi. Is this right. If you never pay out through salaries so you don't pay PAYE over, you can leave the debit loan for as long as you like, as long as you charge interest on it.This way, if entity is cash tight to pay SARS, u just pay into the loan account and charge interest so an employee can still get a full salary amount? When entity has cash again, it can declare a dividend and pay dividend tax over. How will Sars treat this debit loan if left there for say 2 years? Will it want PAYE on the amounts paid at tax year end? thanks so much....

[Dave A]

I believe it will be treated as extracted value and taxed accordingly - essentially as a dividend paid out.

[geraldenek]

There is two sides to this - the salary that you declare you need to declare it to someone - issue an IRP5 certificate so depending on the amount the directors/members will be taxed on that amount in their personal capacities and the amount will be payable to SARS by the company. You already deducted this amount on the Income Statement of the company/cc so the tax would be less for the company.

Just leaving it in a loan account and the loan account is in debit it would attract dividends tax @ 15%.

But did you had a big debit loan prior to allocating the salary as the allocation should attract a credit.

If you don't declare a salary and just use it as loan account money - then your Income statement profit will increase paying tax over at 28% and you have a debit loan with dividens tax @ 15%.

[antonnkramer]

hi. thanks for reply. Appreciate it.
So if the company pays an employee cash and allocates it to the loan account and not to salaries, it must charge interest on the loan at the prescibed rate. When is the loan ever deemed to be a dividend by SARS and the company will have to pay over the 15%? so can the loan stay there for many years as long as interest is being charged on it?
So the cash flows are the company pays over the net amount to the employee's loan account, doesnt have to then pay PAYE over that month, charges interest and one fine day a few years later, the company can declare a dividend to zero the loan. It will pay higher tax at year end as it doesnt get the PAYE portion deducted off income, but atleast it helps out on the cash flow situation if the company is tight.

[Dave A]

So if the company pays an employee cash and allocates it to the loan account and not to salaries, it must charge interest on the loan at the prescibed rate. When is the loan ever deemed to be a dividend by SARS and the company will have to pay over the 15%? so can the loan stay there for many years as long as interest is being charged on it?
So the cash flows are the company pays over the net amount to the employee's loan account, doesnt have to then pay PAYE over that month, charges interest and one fine day a few years later, the company can declare a dividend to zero the loan. It will pay higher tax at year end as it doesnt get the PAYE portion deducted off income, but atleast it helps out on the cash flow situation if the company is tight.

Ouch! My head is spinning

Is this employee a shareholder?