Income Tax Act 2007 section 412E

Subsequent recovery of peer-to-peer loans

Section 412E deals with what happens when a lender recovers money from a peer-to-peer loan that was previously written off as irrecoverable and claimed as a tax relief deduction.

• If you previously claimed a deduction for an irrecoverable peer-to-peer loan and later recover all or part of that amount, the recovered sum is taxed as if it were interest income received at the time of recovery.
• Recovery includes receiving money or money's worth either in satisfaction of your right to recover the debt, or as consideration for assigning (transferring) that right to someone else.
• If you assign your right to recover the debt in a transaction that is not at arm's length (i.e. not on normal commercial terms), you are treated as having received money equal to the market value of that right at the time of the assignment.
• Recovery applies whether you receive the money yourself or another person receives it on your behalf or at your direction.