• When is a debt forgiveness not treated as a dividend?

    A debt forgiveness is not treated as a dividend where:

    • a private company forgives a debt owed to it by another company, unless the other company owed the debt in its capacity as trustee
    • the debt is forgiven because you become a bankrupt or because of Part X of the Bankruptcy Act 1966
    • the debt that has been forgiven results from a loan from a private company that has been treated as a dividend under Division 7A (or section 108 of the Income Tax Assessment Act 1936) in the current year or a previous year
    • the Commissioner of Taxation exercises his discretion not to treat the debt forgiveness as a dividend.

    To exercise his discretion, the Commissioner must be satisfied that:

    • the debt was forgiven by the private company because repayment of the debt would have caused you undue hardship
    • you had the capacity to repay the debt at the time it was incurred
    • you lost the ability to repay the debt as a result of circumstances beyond your control.


    Further Information

    Apply in writing to the Australian Taxation Office (ATO) addressing the above points if you consider you will suffer undue hardship if an amount is treated as a dividend.

    End of further information
      Last modified: 12 Aug 2010QC 17349