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Bad debt and personal income tax deduction

Newbie

Views 1761

Replies 5

Hi everyone

My wife and I recently entered into a couple of loan agreements. These loans were a formal loan agreement, whereby we provided funds to businesses. We were to receive interest payment on maturity of the loan (24).

Unfortunetly the business is now insolvant and we are likley to lose our funds. The assets in the company are unlikely to cover the debt owed.

We therefore expect that the debt will be deemed bad and written off.

From a tax deduction perspective, it appears ATO states we can claim the bad debt against personal income tax as a deduction.

Any one have a view /ruling they would like to share?

Thanks!
1 ACCEPTED SOLUTION

Accepted Solutions

Most helpful response

ATO Community Support

Replies 2

Hi @Ndkaki

 

Thanks for your post.

 

There is another thread in our Community that you can look at where a similar question has been asked. The thread contains some links and other information that you will likely find useful. You can access it here:

 

Re: Write off outstanding invoices

 

Hope this helps.

 

Thanks,

 

ChrisR

5 REPLIES 5

Devotee

Replies 1

Unless you are in the business of loaning money (i.e. a bank), my understanding is that the non-payment of the loan would create a capital loss and only be claimable against capital gains.

Newbie

Replies 0

Thank you for responding. Greatly appreciated.

The ATO websites provides the following clarification of what constitutes perskns engaged in money-lending. Given we have provided multiple loans and they are formal contacts of lending, i cant see why we wouldnt falk into this definition .

Money-lending business - paragraph 63(1)(b) (paragraphs 42 - 46)

7. Paragraph 63(1)(b) applies to taxpayers who are engaged in a money lending business. The question of whether a taxpayer is carrying on a money-lending business is a question of fact. For the purposes of paragraph 63(1)(b), a money lender need not necessarily be ready and willing to lend moneys to the public at large or to a wide class of borrowers. It would be sufficient if the taxpayer lends moneys to certain classes of borrowers provided the taxpayer does so in a businesslike manner with a view to yielding a profit from it.

Thanks

Most helpful response

ATO Community Support

Replies 2

Hi @Ndkaki

 

Thanks for your post.

 

There is another thread in our Community that you can look at where a similar question has been asked. The thread contains some links and other information that you will likely find useful. You can access it here:

 

Re: Write off outstanding invoices

 

Hope this helps.

 

Thanks,

 

ChrisR

Newbie

Replies 1

Hi Chris - thanks for the response, but that thread was not relevant to the circumstance in this query.

ATO Certified Response

ATO Community Support

Replies 0

Hi @Ndkaki

 

Thanks for your reply.

 

We understand that the question asked in the other thread may not have been the same as yours however the information and links in the posts should have been helpful.

 

We recommend that you read paragraphs 42 - 46 of Tax Ruling 92/18 as it expands on paragraph 7.

 

If you're not sure whether it applies to your circumstances, you may want to request an early engagement discussion. You can find out more about that by referring to the early engagement for advice page on our website.

 

Hope this helps.

 

Thanks,

 

ChrisR