|
Post by danraj on Jan 1, 2017 11:51:34 GMT
Happy New Year all, Lenders should be aware that the Lender Dashboard does not currently display all the variables necessary to perform an accurate cash <> asset reconciliation. A missing variable is the asset appreciation, i.e. the increase in capital outstanding which occurs when a loan is refactored (whereby unpaid interest is accrued and compounded into the new loan balance). The movement in asset value has no corresponding cash transaction against which to reconcile. I would like to invite contributions on the best way to incorporate this information into the dashboard. Perhaps it could sit with the microloan gain/loss statistic, along with a modal to separate out the 3 contributing amounts: - microloan purchase gain loss,
- microloan sale gain loss,
- microloan revaluation gain loss
There would need to be a Tooltip to explain that the revaluation is an asset valuation movement. -- Furthermore, we are planning to introduce a P&L and BS statement for Company Lenders and Institutions, perhaps we can extend this to all users and show the information here? We also plan to include the cash <> asset reconciliation into our Auditing procedures. Once we have a solution, it will take a several weeks to implement but will help with transparency and internal auditing. Please only comment if you are an active rebs lender as we would like to form a small 'focus group' for brainstorming, design and review.
|
|
SteveT
Member of DD Central
Posts: 6,874
Likes: 7,919
|
Post by SteveT on Jan 1, 2017 12:26:16 GMT
Before determining which box it should go into on the Dashboard, I think we need to understand whether and when such a conversion of unpaid accrued interest into additional loan capital triggers a tax liability for company and/or personal lenders. Have you taken advice on this?
If such a conversion should be treated as an immediate gain for tax purposes (akin to the interest having been paid but immediately reinvested in additional loan capital) then it makes sense for it to appear under either "Interest Earnings" or "Transaction Gain/Loss" (I'm undecided which, as yet).
However if such a conversion does not crystallise any immediate tax liability then it should not be aggregated with other earnings that do (whether "Interest Earnings" or "Transaction Gain/Loss")
|
|
|
Post by danraj on Jan 2, 2017 14:25:47 GMT
Thanks for the input Steve,
The refactoring does not realise the payment of the due interest. Instead it is mutually agreed that the liability be recognised in the adjustment of the outstanding balance of the new loan. So my expectation is that this would be treated under capital gains tax. I will get advice on this. There is a capital gain/loss calculation shown on the tax statement that results from the appreciation/depreciation in value. So any premium paid is a loss and any discounted purchase is a gain, the inverse is true for sales. Since this logic already exists for the treatment of microloan sales, it would carry through on how I have proposed to implement the change.
Taxation is applied as a consequence of the treatment of the transaction.
|
|
|
Post by tybalt on Jan 2, 2017 16:58:56 GMT
The consensus on the ThinCats forum when a similar problem was discussed was that:
For an individual interest was taxable when received. The individual does not receive the interest when the bookkeeping which refactors the loan takes place but does receive it when the capital is repaid
This left two possibilities assuming a £1,000 loan paying 12% is refactored after 12 months and then repayed in equal monthly instalments of £ 93.66 then either £ 10.00 of the £ 93.66 would be interest received in the month or else part of the penultimate payment of capital, £ 26.33, and all of the final payment would be treated as income.
Whoever the interest is treated it does not fall inside CGT IMHO.
|
|
SteveT
Member of DD Central
Posts: 6,874
Likes: 7,919
|
Post by SteveT on Jan 2, 2017 17:05:05 GMT
[How]ever the interest is treated it does not fall inside CGT IMHO. That was my assumption too. Otherwise, I'd rather appreciate the opportunity to invest in P2P loans that regularly refactor (intentionally) unpaid accrued interest to generate instead a capital gain at term ...
|
|
|
Post by bracknellboy on Jan 2, 2017 22:46:28 GMT
Mod hat off (in case of any doubt). .... The refactoring does not realise the payment of the due interest. Instead it is mutually agreed that the liability be recognised in the adjustment of the outstanding balance of the new loan. So my expectation is that this would be treated under capital gains tax. I'm not a ReBs lender but I'm reading this as referring to situations where unpaid accrued interest (for whatever reason - original loan structure, missed payments etc) is "rolled up", but without the original contracted loan being paid off and replaced with a new loan (with a loan amount of the adjusted balance). Tax law may at the outer edges be a tad complex and non-intuitive, but in the mainstream it is fairly logical and designed not create perverse incentives. The test of "if it looks like a duck, walks like a duck and s***s like a duck" is normally a good one to apply. I have no tax expertise, only layman's common sense. But if it was as simple to choose whether to have what is really interest liability be treated as either capital gains or income by the simple expedient of either choosing to declare it as interest or rolling it up into a what one chooses to nominally refer to as 'adjusted capital', wouldn't everyone be at it ? I think that would be sensible. I think that is rather unlikely. It is more likely that taxation would be applied according to the nature of the beast, not as a consequence of how the transaction happens to be treated/labelled by a particular (involved) party's internal systems.
|
|
|
Post by danraj on Jan 3, 2017 10:46:28 GMT
I see, thanks for sharing.
It would add complexity, but would be possible to create a new type of microloan that represents the accrued compound interest. Subsequently 'capital' repayments of these microloans would be represented as interest earnings (perhaps separately) on the Tax Statement.
My pre-supposition is that it may depend on the contract... if this is a novation onto a new loan agreement, then I perceive the agreement (to increase the debt) should be treated as a capital adjustment. Alternatively, if there is no new agreement, but a variance in the terms of the existing agreement, then treating the unpaid compounded interest separately may be more appropriate.
Do you know any P2P lending tax accountants you can recommend?
Regarding the display of this info, adding the new microloan type to the Gain/Loss tile would be synergistic to my initial suggestion, although the label would change from 'Microloan Revaluation' to 'Interest compounded as capital'.
I'll consult with advisors & the board on what works best.
|
|