Mr Sole, is the sole director and sole shareholder of both Company A and Company B. The two companies are not linked and do not form part of a group of companies. Company A is not a money-lender by trade. Company A loaned monies to Company B. Terms of loa
Author: Peter Surtees
Important:
This answer is based on tax law year ending 28 February 2021.
Answer:
Company A and company B are connected persons in relation to Mr Sole. This means that they are connected persons in relation to each other (paragraph (e) of the definition of “connected person” in section 1(1) of the Income Tax Act). Because company B used the loan for operating expenses, it will be taxable on the amount of the debt waived as a recoupment under section 8(4)(a). And for this reason the connected person clogged loss provisions in paragraphs 39 and 56 of the Eighth Schedule won’t apply to company A.