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Thread: Corporate Tax - Loan Written Off

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    Corporate Tax - Loan Written Off

    Hi,

    When an intercompany loan is written off due to the borrowing company being deregistered, should the lending company pay tax on this as its a gain? Surely it should not as bad debt is a liability.

    Thanks,

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    You will most likely find that SARS will regard it as a dividend and expect the lending company to pay dividend tax.

    Bad debts are normally irrecoverable amounts that arose from from sales. The amount you refer to is an irrecoverable loan, not an expense incurred in the production of income.

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    Quote Originally Posted by Andromeda View Post
    You will most likely find that SARS will regard it as a dividend and expect the lending company to pay dividend tax.

    Bad debts are normally irrecoverable amounts that arose from from sales. The amount you refer to is an irrecoverable loan, not an expense incurred in the production of income.
    Hi, Thanks for the prompt reply.

    I understand the bad debt scenario, so if the loan is irrecoverable does one still have to pay tax? Surely its a loss to the company that lent the money.

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    Hi

    A few questions:
    Are these holding / subsidiary companies?
    If not, how are they related?

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    Hi,

    Thanks for the reply.

    The companies are not related in any way, they separate entities owned by one person. It's inter-company loans which were written off.
    Should tax be paid on this for gains are is it a loss?

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    Ok so they are associates. Consider what would happen if company A lent money to Company B, and company B "loans" it to the common shareholder, then folds or de-registers. The result is the shareholder has just received a dividend from A that was never taxed.

    I would suggest writing the loan off as irrecoverable in the financial statements and then in the tax return / tax calculation add it back as "Expenses not actually incurred in the production of income" Sec. 11(a). With luck that will be that.

    Edit:
    Has the lending company already been assessed?

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    Quote Originally Posted by Andromeda View Post
    Ok so they are associates. Consider what would happen if company A lent money to Company B, and company B "loans" it to the common shareholder, then folds or de-registers. The result is the shareholder has just received a dividend from A that was never taxed.

    I would suggest writing the loan off as irrecoverable in the financial statements and then in the tax return / tax calculation add it back as "Expenses not actually incurred in the production of income" Sec. 11(a). With luck that will be that.

    Edit:
    Has the lending company already been assessed?
    Hi Again and thanks.
    The lending company has been assessed.

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