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  • Debt forgiveness



    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    A debt is forgiven if you are freed from the obligation to pay it. Commercial debt forgiveness rules apply to debts forgiven after 27 June 1996. A debt is a commercial debt if part or all of the interest payable on the debt is, or would be, an allowable deduction.

    Example: Debt forgiveness

    On 1 July 2001, Josef had available net capital losses of $9,000. On 1 January 2002, he sold some shares for $20,000. They had a cost base (no indexation) of $7,500. On 1 April 2002, a commercial debt of $15,000 that Josef owed to AZC Pty Ltd was forgiven. Josef had no prior year revenue losses and no deductible capital expenditure.

    Josef would work out what net capital gain to include in his assessable income as follows:

    Available net capital losses


    less debt forgiveness adjustment


    Adjusted net capital loss


    Cost base of shares (no indexation)


    less debt forgiveness adjustment


    Adjusted cost base


    Calculation of net capital gain

    Sale of shares


    Adjusted cost base (no indexation)


    less carried forward loss


    Capital gain (eligible for discount)


    less discount percentage (50%)


    Net capital gain



    End of example

    Under the commercial debt forgiveness rules, a forgiven amount may reduce (in the following order) your:

    • prior year revenue losses
    • prior year net capital losses
    • deductible expenditure
    • cost base and reduced cost base of assets.

    These rules do not apply if the debt is forgiven as a result of:

    • an action under bankruptcy law
    • a deceased person's will or
    • reasons of natural love and affection.
    Last modified: 06 Oct 2009QC 27417