The following example illustrates how to account for non-share equity interest.
Example: Non-share equity interest
Assume a controlling shareholder has made an undocumented $50,000 connected entity ‘at call loan’ to a company on 1 July 2021, on the understanding that interest may be paid on the loan from time to time. The company’s annual turnover exceeds the maximum allowable under the small business carve-out test, and the loan is a non-share equity interest of the company. For an explanation of the application of the debt/equity rules to connected entity at call loans, refer to the guide to ‘at call loans’.
The company has a non-share capital account. It will be credited with the value of the at call loan to account for the equity interest. Its non-share capital account will be debited with the amount of any repayments the company makes.
Assume the company repays $10,000 to the shareholder on 1 January 2022. It will debit its non-share capital account for $10,000.
The transactions above would be shown in the non-share capital account as follows.
|
Date |
Transaction |
Debits |
Credits |
|---|---|---|---|
|
01/07/2021 |
Loan – Director XYZ |
|
$50,000 |
|
01/01/2022 |
Repayment of loan – Director XYZ |
$10,000 |
|
End of example