Commentary on Sections Structure of Chapters Chapter 6: Release of loan to participator in close company Section 421: Income tax treated as paid
1704.This section explains how a person’s income tax liability is satisfied (in whole or in part). It is based on section 421(1)(b) of ICTA.
1705.Under subsection (1), the person liable is treated as having paid income tax at the dividend ordinary rate (Schedule F ordinary rate in the source legislation) on the gross amount released or written off.
1706.If the debt is released or written off during the administration of a deceased person’s estate, the personal representatives are not charged to tax under this Chapter but the amount of income that would otherwise be so charged forms part of the aggregate income of the estate for the purposes of Chapter 6 of Part 5 of this Act or section 701(8) of ICTA. As personal representatives are not charged to tax under this Chapter they are not “persons liable”. This means that they are not treated as having paid income tax under this section (but see the commentary on section 680). “Personal representatives” is defined in section 878 of this Act.
1707.Subsection (2) provides that the tax treated as paid is not repayable. This applies even if the person is a non-taxpayer.
1708.Subsections (3), (4) and (5) ensure that an individual cannot be given credit for income tax on more than the amount of the loan released or written off which is charged to tax.
1709.Section 421(1)(c) of ICTA deals with tax rates and treats the amount charged to tax as not brought into charge to tax for the purposes of sections 348 and 349 of ICTA. Section 421(1)(c) of ICTA is not rewritten in this Chapter. But rather than leaving it “stranded” in section 421 of ICTA it is rewritten in amendments to sections 1A of ICTA and 348 and 349 of ICTA (see paragraphs 3 and 147(3) of Schedule 1 to this Act respectively).