It is very important to manage any loan account that you have with your company, because this can save you paying unnecessary tax.
Loans to a company by you
- Money you spent on behalf of the company before it was registered. This is something that is frequently neglected.
- Your assets, such as computers, printers etc. that the company now uses. You should sell them to the company and credit your loan account with the sale price.
- Money you lent to the company when it was short of cash.
- Your after tax salary, for which the company does not have the cash must be credited to the loan account.
- You should charge interest on this loan up to your interest allowance. If you are younger than 65, you can receive R23 800 interest each year before paying tax on it. The interest is a tax deductible expense for the company, so it saves 27%, or R6 426 tax while you pay none. If you are 65 or older, this goes to R34 500 and the company saves R9 315 in tax.
- If you have a spouse (life partner), you can both take advantage of this allowance, so donate to your spouse (no Donations Tax there) and let your spouse loan to the company instead of lending it all yourself.
- If the company is owned by a trust, you are, in terms of s7C of the Income Tax Act, required to charge interest at least at the official rate. If you don't, the uncharged interest is deemed to be a donations subject to Donations Tax.
- The proviso here is that every natural person can donate a total of R100 000 each tax year free of Donations Tax, this uncharged interest could be included in that allowed total.
If, at a later date, the company has spare cash, it can pay off the loan and you won't pay any tax on that, because it is already your money.
Loans from the company to you
- Payments that the company made on your behalf, such as that hamburger for a quick lunch.
- Money that the company had available when you needed some.
- The company should charge you interest at least at the official rate, otherwise the interest that it did not charge is deemed to have been a Dividend subject to 20% Dividends Witholding Tax.
- The interest will be added to the company's taxable income as Interest Received and will be added to the amount that you owe.
