Client company provided cost of new shelf company for associated business having the same shareholders. The new shelf company has not traded and the only balance sheet entries are the prelim expense and inter company loan of $527.00.
In the accounts of the new shelf company it is intended to write off the preliminary expense and the loan from the associated company. What is the treatment and tax implications for the associated company?
I think it would mean make the shelf company 'net income' 0. Not too sure what the order of the steps are but I think it would either be declare a tax loss but then don't carry it forward since the debt forgiveness cancels it out; or the debt forgiveness cancels out the setup cost in the first place.
"If a commercial debt owed by a company is forgiven during the income year, the company should apply the ‘net forgiven amount’ of that debt to reduce the company’s tax losses, net capital losses, certain undeducted revenue or capital expenditure, and the cost bases of CGT assets, in that order."
I think it would mean make the shelf company 'net income' 0. Not too sure what the order of the steps are but I think it would either be declare a tax loss but then don't carry it forward since the debt forgiveness cancels it out; or the debt forgiveness cancels out the setup cost in the first place.
"If a commercial debt owed by a company is forgiven during the income year, the company should apply the ‘net forgiven amount’ of that debt to reduce the company’s tax losses, net capital losses, certain undeducted revenue or capital expenditure, and the cost bases of CGT assets, in that order."
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