Where the sole director has taken the remaining assets in part satisfaction of a director loan and the remaining director loan was forgiven before year-end, what should be reported at Item 8 (Financial and other information) on the final company tax return?
Hi @LisaGP,
The tax treatment depends on the nature of the loan.
If the company forgave a loan owing by the director/shareholder, Division 7A may treat the forgiven amount as an unfranked dividend assessable to the shareholder. However, if it was a loan owing by the company to the director that was forgiven by the director, Division 7A would generally not apply.
For the final company tax return, Item 8 should reflect the company's financial position at year-end. Following the transfer of assets and forgiveness of the remaining loan balance, the loan should no longer be shown as an asset if it has been extinguished. If there is no loan with a debit balance at year-end, Label N (Loans to shareholders and their associates) would generally be nil.
The company's balance sheet should be reviewed to ensure the asset transfer and loan adjustments have been correctly recorded. Any personal tax consequences for the director will depend on the specific nature of the loan and the circumstances of the forgiveness.
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