Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

No tax relief for investors in failed companies

3 July 2006

No tax relief for investors in failed finance companies

"Investors in companies that go into receivership need to be aware that the losses on their loan (debenture) are not deductible for tax purposes," says Craig Macalister, Tax Director of the New Zealand Institute of Chartered Accountants.

The recent publicity on finance companies that have gone into receivership with a possible shortfall of several million dollars highlights the issue for individual investors who have invested in the finance company, typically by way of a debenture.

Although a deduction is available for any interest income already returned, any loss ultimately incurred on the investment is not deductible for tax purposes unless the person is in the business of lending money.

Mr Macalister stated that individual lenders need to be aware of this. There is a tendency for investors to think that because any gain on the investment is taxable any losses may be deductible: this is not so.

Ironically, while the loss on the investor's loan is considered a loss of capital, the same does not apply to the finance company borrower. In the case of the borrower, the rules take an economic substance approach and regard the amount of the loan forgiven in any arrangement with creditors as income.

"So the same amount is treated differently: a non-taxable loss to the lender, but taxable income to the defaulting borrower – the revenue gets to have its cake and eat it too," says Mr Macalister. "

ENDS


© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Dry: Beef + Lamb Launches Drought Resources

The resources include a fact sheet outlining strategies to manage and mitigate the effects of drought, coping with stress on the farm and advice on feed requirements and animal welfare during the dry period. More>>

ALSO:

InternetNZ: Net Neutrality Failure In US "Will Hurt All Users"

InternetNZ Chief Executive Jordan Carter has condemned the decision by the United States communications regulator to undo 2015 open Internet rules, warning that all Internet users will end up worse off as a result. More>>

ALSO:

Mycoplasma Bovis: More Properties Positive

One of the latest infected properties is in the Hastings district, the other three are within a farming enterprise in Winton. The suspect property is near Ashburton. More>>

ALSO:

Manawatū Gorge Alternative: More Work Needed To Choose Route

“We are currently working closely and in partnership with local councils and other stakeholders to make the right long-term decision. It’s vital we have strong support on the new route as it will represent a very significant long-term investment and it will need to serve the region and the country for decades to come.” More>>

ALSO:

ScoopPro: Helping PR Professionals Get More Out Of Scoop

Scoop.co.nz has been a fixture of New Zealand’s news and Public Relations infrastructure for over 18 years. However, without the financial assistance of those using Scoop in a professional context in key sectors such as Public Relations and media, Scoop will not be able to continue this service... More>>