Loans from Companies to shareholders/members

[JHolden]

Good Morning,

I need clarity on loan to shareholders.

If a company has a debit loan with a shareholder (Ie. The shareholder owes the company money) do you have to put interest on that loan ?

Would it matter if it was a credit/debit loan ?

I have heard that the first year of a loan does not have to have interest on it. Is this true ? Cant find anything in legislation with regard to this.

According to the Income tax act, if you have a loan that does not have interest it will be a deemed dividends. To avoid this interest must be put on loan accounts at a market related rate.

[Dave A]

I do know that in the past, interest free (or low interest) loans from companies to members (in the case of cc's) and directors (in the case of companies) would at the very least attract fringe benefit tax.

According to the Income tax act, if you have a loan that does not have interest it will be a deemed dividends. To avoid this interest must be put on loan accounts at a market related rate.

That would be an interesting incentive to charge interest on shareholder loans! Could you point towards some sort of official document on that?

[geraldenek]

These rules are applicable to natural sa residents:

In the case of a debit loan:

Interest-free loans are deemed as dividends and it is also deemed to be a dividend if the loan is not repaid by the end of the next financial year – this answers your 12 month question

In the case of a credit loan:

If the interest on the loan agrees with the interest rate set by the Minister of Finance in the Gazette the loan is considered as a loan in the normal course of business and STC is levied.

With the new VET act coming into place soon the situation will change a bit.

[SilverNodashi]

If the interest on the loan agrees with the interest rate set by the Minister of Finance in the Gazette the loan is considered as a loan in the normal course of business and STC is levied.

With the new VET act coming into place soon the situation will change a bit.

I'm rather curious about this. How will it change?

[geraldenek]

The main difference with the VET is that it is only the market-related interest that is subject to the tax, whereas with the STC regime, the entire loan amount is subject to STC. The other main difference is that under the STC regime, the financial assistance is deemed to be a dividend if the loan is not repaid by the end of the next financial year, whereas with the VET regime it will be payable from inception.

You can read a bit more about this here