Tax Deduction for Money Lent to Company

Discussion in 'Business Accounting, Tax & Legal' started by JJRomeo, 4th Jun, 2020.

Join Australia's most dynamic and respected property investment community
  1. JJRomeo

    JJRomeo New Member

    Joined:
    3rd Jun, 2020
    Posts:
    4
    Location:
    Sydney
    I was speaking to a friend about this over the weekend and he mentioned something that made me want to learn more.

    I own a business that I have lent my personal cash to. Unfortunately the business is not going to continue and I will need to shut it down.

    The business still has a loan to repay back to me, which is recorded on its books.

    A few questions:
    1. Can I write-off this debt to the company?
    2. If I write-off this debt, can I claim it on my individual tax return as a loss and put it as a deduction to my personal tax return?
    3. If I cant do any of the above, does it mean ive just lost my money that I lent to the business and its not recoverable?
    4. Is there any other way to report the loss and offset / deduct the loss?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,807
    Location:
    Australia wide
    Keep in mind a company is separate to a business. Do you own shares in a company which is operating a business?

    1. Is there a written loan agreement on commercial terms? if so you might have a capital loss if the money lent is not able to be recovered.
    2. Yes - assuming above, it would be a capital loss
    3. yes
    4. no
     
  3. CryptoClown

    CryptoClown Well-Known Member

    Joined:
    12th May, 2020
    Posts:
    45
    Location:
    NSW
    I was wondering this as well.

    I have a PTY LTD company which I own 100% of the shares in. Company has a recent loss on the books and business is shut down. Was hoping to buy a cash cow through the PTY LTD company. Can i lend money in a loan agreement with a sensible interest rate to the company to purchase the property and claim the interest as a deduction. Obviously I would need to pay tax on the interest earned on my personal tax return?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,807
    Location:
    Australia wide
    Yes that is possible, just get some advice as a few issues to consider.
     
  5. JJRomeo

    JJRomeo New Member

    Joined:
    3rd Jun, 2020
    Posts:
    4
    Location:
    Sydney
    I own 100% shares in the company which is operating as a business.

    1. Yes there is a written loan agreement on commercial terms.

    So I guess then in terms of a capital loss, I can only offset that against any capital gains and not my personal income?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

    Joined:
    9th Jun, 2006
    Posts:
    30,807
    Location:
    Australia wide
    Yes, capital losses can only offset capital gains.

    Did you borrow to lend to the company? You might be able to keep claiming the interest too.
     
  7. Mike A

    Mike A Accountant Business Member

    Joined:
    24th Jun, 2015
    Posts:
    2,252
    Location:
    MELBOURNE
    if you write off the debt owed by the company you will need to carefully consider the commercial debt forgiveness provisions and the tax impacts for the company.
     
    Terry_w likes this.