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moke007
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JamesMillar, post: 75272 wrote:
If the company generates profits it will pay company tax. The payment back to you is not an expense or deduction from the business income so even if the company pays you will it will simultaneously still have a tax bill unaffected by the repayment to you. the company is paying tax irrespective of whether it pays you back or not – the two issues are unrelated.

Hi all, been a lurker here for a while, great forum. Anyway, I am having trouble getting my head around this so would like to give an example for your comment.

A director owns ABC PTY.LTD
It has just started and has $0 in funds
The director loans the company $5000 to get things going
The company spends that $5000 on legitimate business expenses and now again has $0 balance (but still owes the director $5000)
Now the company makes $5000 in sales and uses that money to repay the debt, this takes there account back to $0

So what this means is the company has made $5000 but has also spend $5000 so there is no profit to pay tax on. So why is the repayment of a directors loan counted I guess what I am trying to ask, if the loan is used for business expenses, why is it not a deduction from the business income when it is repaid.

cheers
Jim