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  • Commercial debt forgiveness

    Attention

    Warning:

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

    End of attention

    Generally, an amount which you owe is a commercial debt if you can claim a deduction for the interest paid on the debt or you would have been able to claim a deduction for interest if it had been charged. The amount of the commercial debt includes any unpaid interest.

    If your commercial debts are forgiven, you may choose or be required to reduce the base amount used in working out depreciation on an item of plant you acquired before the year of income in which your commercial debts were forgiven. The amount used to reduce the base amount is taken to be an amount you have deducted for depreciation of the plant as at the first day of the same income year in which your debts were forgiven.

    If you use the prime cost method, the base amount-that is, the cost-is reduced by the amount forgiven before you work out depreciation for the year in which the debt is forgiven.

    If you use the diminishing value method, the undeducted cost of the plant at the start of the year in which the debt is forgiven is reduced by the amount forgiven before you work out depreciation for that year.

    Last modified: 07 Jan 2005QC 27380