Thank you all for the assistance and recommendations on this matter, I really appreciate it.
After careful consideration and looking back at the documentation, I think that the substance / form is a rather tough argument to prove when it comes to tax/legal compliance and moral practice.
It's clear that the member wants this loan to be written off to get the balance sheet healthy and to make his benefits from the company appear less.
Also, it is difficult to argue the substance when the nature of the vehicle is both personal and business. (Easier if it were a machine or delivery vehicle)
From a legal matter, I think the rental idea is the best. Unfortunately with that comes the tax implications on his personal side which one cannot do much about but what Dave A mentioned.
That said, I'll recommend the rental idea to him, and in the end it is his choice to follow through with all of that admin. But for now it stays as a loan in the AFS.
However I don't think that I will follow through with capitalizing the vehicle as clearly the nature of it being both personal / business is already a problem, as well as the fact that
the trade in of the vehicle never granted an allowance deposit for the new one, which means the company never even benefited out of this trade in at all either.
Also, it wasn't the company's decision to trade in the vehicle in such a short period of time, it was his, so indirectly he is controlling matters.
All signs that it was for personal benefit.
If the rental isn't what he wants, then unfortunately paying back the loan is the only option and in future he will need to consider increasing his salaries to account for
all his future expenses that the company pays on behalf of him. (In turn increasing his personal tax liability).
Sad story but I guess a lesson learnt is seeking advice from one's accountant or tax practitioner first before purchasing items which could have these implications on the AFS.
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