Loans from a Sole Trader or Partnership Business to the Owner

Loans from business to the owner(s) and interest paid on these loans

Sole traders

• Although described as an asset on the business balance sheet, such amounts are not true assets, but represent a loan by the business to the owner i.e. the owner borrowing from themself. In practice, the amount of such loans represents a withdrawal of capital from the business.
• Any such amounts detailed as assets on the balance sheet of a sole trader in respect of the customer or their partner are deducted from the assessable value of the business i.e. in practice disregarding the loans.
• Such accounts are not subject to deeming. However, where interest was received by the business in respect of such investments, the amount of any actual income should be included as income of the business and taken into account when calculating the assessable business income.
• Any expenses claimed in the profit and loss statement of the business in respect of loans made by the business to the owner are allowed as a deduction against the gross business income.

Note: Where a loan by a business to the owner is used to fund the purchase of asset(s) by the owner, the amount of the loan is not allowed as a deduction against the assessable value of the asset(s) purchased.

The liability owed by the owner to the business is taken into account through deduction of the amount of the loan from the assessable value of the business.

Any deficiency in the assessable value of the business as a result of offsetting of a loan owed to the business by the owner is not allowed as a deduction against the assessable value of the asset(s) funded by such borrowings.

Loans from business to the owner(s) and interest paid on these loans

Partnerships

• Although described as an asset on the business balance sheet, such amounts are not 'true' assets, in effect representing a loan by the business to one of the partners i.e. the partner drawing on their equity in the partnership.
• Any such amounts detailed as assets on the balance sheet as owed to the business by the partner, are included as assets when determining the overall net value of the business, but are deducted from the partner's share of the proprietorship (the sum of the partner's capital and current accounts) when calculating the assessable value of the partner's interest in the partnership.
• Deeming does not apply to loans made by a partnership to the partners. However, where interest was received by the business in respect of such investments, the amount of any actual income should be included as income of the business and taken into account when calculating the assessable business income.
• Any expenses claimed in the profit and loss statement of the business in respect of loans made by the business to a partner are allowed as a deduction against the gross business income.

Note: Where the loan by a partnership to a partner is used to fund the purchase of asset(s) by the partner which are not included on the balance sheet, the amount of the loan is not allowed as a deduction against the assessable value of the asset purchased.

The liability owed by the partner to the business is taken into account through deduction of the amount of the loan from the assessable value of the partner's interest in the partnership.

Any deficiency in the value of a partner's interest in the partnership as a result of offsetting of a loan owed to the business is not allowed as a deduction against the assessable value of the asset(s) funded by such borrowings.