Over several years my mother and father as individuals
and also one of their discretionary trusts loaned funds to me to investment in various business interests
myself. This is almost comparative to a revolving loan that a financial institution provides. In this case money drawn as required with documentation accordingly and also and expectation of repayment.
The funds were either directed as follows:
BANK - PARENTS
PARENTS - ME
ME - TO MY OWN DISCRETIONARY TRUSTS as this is the way I set up my business operations i.e any venture is owned or currently own by a TRUSTEE on behalf of a DISCRETIONARY TRUST
I note that two of these enterprises (if we may refer to each business units this way0 whereby I was the sole shareholder
and directory secretary in one instance for the entire period the business existed, and the other my mother was a director (unpaid) only never a shareholder of the trustee or beneficiary
of the trust. Unfortunately these trusts were wound up and put into liquidation by the courts.
Some such funds remain on loan to other enterprises that to date have not become bad debts however may also follow suit not through liquidation rather than an inability to recover where it be internally or through the court system as covered by the income taxation rules
1.5m to date has been provided by either of the two scenarios as noted above, and through the liquidation of the two entities a bad debt arrises which is clearly established by the liquidator for inclusion in the lending parties income tax return
as a bad debt.
It is very clear and unquestionable that particularly the liquidated entities who never repaid these loan accounts due hence attracting a bad debt to the lender.
my primary objective is to ascertain if given I am in the belief that the bad debt write of is a capital loss
to the lending party unless they are in the business of lending. In my view this is the case as the funds went to multiple entities and were also funds that came from income that was earned and taxed as income when earned by the lender, hence there must be grounds for the debt to be written off against revenue in preference to capital gains
now or in the future.
The funds were never loaned with a view by my parent as making a capital investment and or return by the beneficiary purely and simply as a loan with the cost of the loan to the relevant party being the costs that were incurred to obtain the funds. With a provision of additional interest on top of these costs, being the cost of funding added by my parents i.e as a profit for the supply of the funds.
May i please ask your professional opinion on this matter as it would be greatly appreciated. I note that for example that in this particular example i believe a deduction
has been missed by my parents which would have significantly reduced their tax liability
with the following as an example:
2012 FINANCIAL YEAR
GROSS TAXABLE INCOME
- 855 523.00 less income tax
GROSS TAXABLE INCOME - 606 239.00 les income tax
as you can see this would clearly be more beneficial as an income tax item rather than a capital item.
The only other thing that I question is that I read somewhere in some research that the CGT deduction can be utilised at an amount of 20 % per annum going forward for a period of four financial years (assumably this would be offset against income rather than capital events).
Thank you kindly for your assistance with this matter.