The Future For Directors’ Loans

1. No Tax Liability on Shareholders’ Loans if you are NOT a director. Note the Comptroller has powers to tax undistributed profits as distributed dividends under section 30 (if there is a tax motive).
   
   
2. A Director is deemed to be an Employee under the Income Tax Act, you need to keep track of all benefits in cash and money’s worth as these will be taxable.
   
   
3. You are on stronger grounds if a director can demonstrate that his loan is granted under the same terms and conditions as are for all loans to all employees, for example under an Employee Loan Scheme for Housing, or under an Employee Loan Scheme for Private Cars. 
   
   
4. What is important is that the director should not have the benefit of interest-free or interest-subsidised loans due to his influence through shareholdings, or his position as a director.
   
   
5. You must be able to demonstrate that the interest-free or interest-subsidised loans are not made for tax reasons, for tax motives, for personal benefit or personal advantage.
   
   
6. Partners and sole proprietors can freely draw money in and out of the business without any tax liability as they are not employees and the money belong to them. Not so for companies.
   
   
7. It is necessary to keep track of the movements on the loan accounts and identify the reasons for each payment (and repayment) made by the company to you or on your behalf. See your accountant!
   
   
8. You should document and minute loan arrangements, loan repayment terms, and other conditions of the loans. See your lawyer!

This is not the full article.

The contents on the Site are copyrighted.  Any unauthorized use of any materials on the Site will violate copyright, trademark and other laws.  Materials on the Site may not be modified, reproduced or publicly displayed, performed or distributed or used for any public or commercial purposes.

Information is not advice.  The information provided in this paper should not be acted upon without professional advice.  As this is an Executive Summary, important conditions and other details may be or are omitted.  We accept no liability for persons who act on this publication without consulting us or their professional advisers.

<< Back