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D3.401C Loans made by close companies to participators

This document discusses the specific anti-avoidance provisions that apply when a close company makes a qualifying loan/advance to a qualifying participator. The tax implications that arise when such loans are repaid, waived/released are discussed at D3.401D.

The fundamental aim of all these provisions is to prevent participators enjoying the use of the income of a close company free of tax. Where it not for these rules, it would be possible for 'loans' to be made to participators from the close company and be allowed to remain outstanding indefinitely, be waived or written off.

Reference should also be made to the decisions of the GAAR Advisory Panel as many of them relate to arrangements for the tax-free extraction of cash/value by an owner/director from their owner-managed company. In most cases the Panel has come to the conclusion that the arrangements were contrived and not consistent with the principles of the legislation. The only exception is a decision made on 21 July 2022 where the Panel highlighted a shortfall in