Commentary

B2.452 Losses—loss of loans to finance suppliers etc

Business tax
Business tax | Commentary

B2.452 Losses—loss of loans to finance suppliers etc

Business tax | Commentary

B2.452 Losses—loss of loans to finance suppliers etc

If a business makes a loan to another business which supplies it with its raw material or other manufacturing commodity, and the loan is lost, the amount of the loss cannot normally be deducted because the loss was not made in the course of carrying on the business which lost the money. In other words, it is a 'loss not connected with or arising out of the trade'1.

This point arose in English Crown Spelter Co Ltd2, where the company carried on the business of zinc smelting, and had to obtain large supplies of zinc blende. For this purpose a new company was formed and was largely financed by the appellant company in the form of loans. The new company failed however, and the total sum lent was written off by the appellant company as a bad debt. It was held that the sums lent were an investment of capital in the other company and were therefore not deductible. In this case the

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