SAIM10260 - Relief for interest paid: interest in a close company: 鈥榗apital recovery condition鈥�: example
Recovery of capital: example
On 1 July 2006, Jane buys 10% of the ordinary share capital of Widgets Ltd, a close trading company, for 拢10,000. She meets the cost using a loan of 拢15,000 obtained a few days earlier, bearing interest at 10% per annum, payable half-yearly. She pays interest on the loan as follows:
31 December 2006: 拢750
30 June 2007: 拢750
31 December 2007 : 拢750
She was engaged for the greater part of her time in the management of Widgets Ltd in the period from 1 July 2006 to 31 December 2007.
If, on 1 July 2007, she sold one half of her shares for 拢6,000, relief could be claimed as follows:
2006- to 2007:
拢750 x 拢10,000 / 拢15,000 = 拢500
2007-08
Relief for interest paid 30 June 2007 :
拢750 x 拢10,000 / 拢15,000 = 拢500
Relief for interest paid 31 December 2007 :
(拢750 x 拢10,000 / 拢15,000 = 拢500) - (拢6,000 x 10% x 6/12 = 拢300) = 拢200
Total Relief due = 拢700
If there are no further transactions and Jane continues to be a shareholder who is engaged for the greater part of her time in the management of the company, relief may be claimed for 2008-09 on 拢400 (拢4,000 at 10%).