Section 1064: Certain expenses of close companies treated as distributions
3108.This section extends the meaning of “distribution” to include certain expenses incurred by a close company in providing benefits for participators. It is based on section 418(1), (2) and (4) of ICTA.
3109.Expenses that fall within the rules are treated as distributions, the amount of the distribution being measured in the same way as under the income tax code if a benefit is provided to an employee.
3110.Clarification has been provided in subsection (2)(b) in relation to the question of amounts “made good” by the participator. The source legislation measures the amount of the “expense” in section 418(4) of ICTA by reference to the income tax legislation relating to employee benefits in kind – see subsection (3). The amount found under those rules is the net amount after any amounts made good or contributed by the employee.
3111.The purpose of section 418(2) of ICTA is to set out the conditions for an amount to be treated as a distribution. Section 418(2) also provides that the amount of the “expense” is reduced by any amount “made good”. In plain words, an amount can only be “made good” if it has been borne by the company – and if the participator has already made good any amount in arriving at the calculation in section 418(4) of ICTA then it is not possible to make it good again because the company has not borne the expense (or that part of it). Subsection (2)(b) makes this explicit.
3112.Where an amount contributed by the participator is not taken into account in the computation made using the employee benefit in kind rules, the reduction provided for in section 418(2) of ICTA can then take effect.
3113.Sections 1065 and 1066 set out two exceptions. Section 1067 contains supplementary material.
