Were the loans repaid by the shareholders?
Referring to the ordinary meaning of the word ‘repaid’ (which means the paying back of monies that have been borrowed), the AAT considered it is necessary to look at whether there was anything in the accounts that suggested any of the advances made for the purchase of groceries and other personal items had been repaid to the company by the shareholders. In this regard, the AAT identified two important aspects of the general ledger accounts in the relevant income years.
Firstly, other than for some minor amounts, which were likely to be refunds on grocery and similar items, there were no amounts recorded as credits that indicated repayments of the loaned amounts. There were also other amounts found elsewhere in the general ledger that was recorded as credits in favour of the shareholders, but these were also not described as repayments of any loan but rather, credits against things like directors’ fees, or other loans.
Secondly, there was no account other than the account styled ‘Shareholders Loan Account’ that in any obvious way recorded any loans to the shareholders by the Company at all.
The AAT was also of the view that, if the amounts credited into company accounts (e.g., for directors fees) were intended to be a reduction or repayment of the shareholders loan, there was no reason for the amounts to remain in those accounts. That is, it would have been a “remarkably simple task” for the ‘Shareholders Loan Account’ to have reflected any repayment by providing a credit for the amounts repaid (where that was the intention). However, this was not done.
The AAT, therefore, concluded there were no amounts repaid by the shareholders in reduction of their loan account in the 2012 or 2013 income years.
The taxpayers also submitted that the Commissioner had failed to consider several ‘sub-accounts’ that were said to be relevant to the shareholder loans. However, according to the AAT, there was no identifiable relationship between these sub-accounts and the ‘Shareholders Loan Account’. Nor was it apparent from any of the ‘sub-accounts’ that they recorded anything about any loan by the company to the taxpayers, or of any associated repayments.