When a loan is written off, it triggers CGT event of C2. The loan is a personal use asset if it was not made to derive assessable income. You can’t claim a capital loss for personal use assets. But if the loan was made to derive income, eg interest income, then the exclusion for personal use assets doesn’t apply.
Is debt forgiveness a CGT event?
If the shareholder decides to forgive the loan, the “forgiveness” will terminate the obligation of the borrower (the company) to repay the loan. A loan receivable is an asset for CGT purposes and when the loan is forgiven, CGT event C2 happens because ownership of the asset comes to an end (sect 104-25 of ITAA 1997).
Can a director write off a CGT loan?
Got a client who was a director of a company which has ceased trading. Director paid £20k into the company to fund trading activities. Director seems to think loan write off can be set against other income. As far as I can see it is a capital loss whichcan be offset against capital gains only.
How to claim tax relief on written off director’s loan?
See which has a chapter on this. The normal route would therefore result in a loss which may then be set against current or future capital gains. It MAY be possible to re-arrange the company’s affairs so that the resultant loss can be set against income.
Can a creditor director claim relief under s.253?
… on the loan relationships point. You only get a taxable credit in the company if you release the loan, but the creditor director can still claim relief under S.253 if the loan has become irrecoverable (which doesn’t necessitate a release). If the company can’t afford to pay it back, and doesn’t have any way of generating funds to repay it.
Can a CGT loss on disposal by an assignee be allowed?
However, if the assignee and the original creditor are ‘connected persons’ for CGT purposes, a loss on disposal by the assignee is not an allowable loss. Of course, corporate debt is covered by the loan relationship rules (in CTA 2009, Pts 5-7).
