Company Guarantees
Did
you know that if a company guarantees the borrowings of a director, family
trust or shareholder, the borrower may be required to immediately declare the
amount of the guarantee as income, and pay tax on it?
S109UA of the Income
Tax Assessment Act 1936 treats a guarantee by a company to one of
its directors, shareholders, family trust or associates, as a payment, and
therefore tax becomes immediately payable.
The only exception to this provision is if the guarantee is contingent upon the
borrower defaulting before the guarantee can be relied upon.
Watkins Tapsell
recommends that all company guarantees of director's, shareholder's, family
trust's or associate's obligations or borrowings are carefully reviewed to
ensure the guarantee is contingent upon a default of the borrower rather than
able to be relied upon immediately.
At Watkins Tapsell we also advise of any
adverse tax consequences related to such guarantees.
|
