Sars Loan Agreement

Where there is more than one shareholder, loans are usually presented in proportion to the participation and the shareholders` agreement ensures that this is always the case (or, if not, compensates shareholders who provide additional funds to a greater extent). Nevertheless, the Income Tax Act 1962 (the Act) does not recognise the economic substance of the situation where, in commercial reality, these loans are a fixed capital of the enterprise which, in many respects, is no different from the share capital. As I have already indicated, investment in companies with a minimum of share capital and loans to large shareholders is probably a legacy of the past, when credit was a useful mechanism to allow shareholders to make profits without paying taxable dividends, and their capital without the complex rules of social law that previously applied to the reduction of share capital, Easy to remove. such as obtaining a court order or agreeing to all creditors. Today, it is no more difficult to have a reduction in share capital than to pay an ordinary annual dividend, and both objectives, namely the withdrawal of cash generated by profits other than taxable dividends, or the reduction of capital, can thus be achieved. The only remaining advantage of a loan over the share capital is that the partner, as a creditor, competes with other creditors of the company in the event of insolvency, whereas this is not the case as a partner. However, in practice, it is likely that the shareholder has subordinated or re-elected the loan, regardless of the case where this benefit has been removed. What is important is that a taxpayer takes into account the funds paid as a loan or debt does not matter, but we have to look at the nature of the funds put forward. The importance is whether the expenditure or losses are the result of funds which have been paid as investment capital to equip the taxable person`s income structure, which constitutes capital or floating capital forming part of the taxable person`s commercial activities and therefore natural revenue. On the other hand, if the buyer happens to be a non-resident, then the profits will not be taxable in South Africa, in which case the seller is not entitled to the loss. But not all losses due to a shareholder`s loan are necessarily admitted as a loss of capital that can protect other capital gains. The reason for this is that section 56 of the eighth list of the Act (the eighth list) states that where a creditor has a debt owed by a debtor and they are “related persons” within the meaning of the law, the creditor must be unaware of any loss of capital resulting from the assignment.

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