Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-10 - FINANCIAL TRANSACTIONS  

Division 245 - Forgiveness of commercial debts  

Subdivision 245-C - Calculation of gross forgiven amount of a debt  

Working out the value of a debt

SECTION 245-50  

245-50   Extent of forgiveness if consideration is given  

If any consideration is paid or given in respect of the *forgiveness of a debt, the debt that is forgiven is:

(a) the obligation that existed before the forgiveness to pay so much of the debt as is expressed, or is taken, to be forgiven; and

(b) the obligation that existed before the forgiveness to pay any part of the debt to which paragraph (a) does not apply but which ceases to be payable as a result of the payment or giving of the consideration.

Example:

Daniel owes Samara $100. Samara agrees to accept $60 in full payment of the debt.

If their agreement specifies that Samara forgives the whole debt in return for $60, paragraph (a) provides that the forgiven debt is $100.

If their agreement instead requires Daniel to repay $60 and specifies that Samara forgives the remaining $40, paragraph (a) would deal with the $40 and paragraph (b) would add the remaining $60, again producing a forgiven amount of $100.

In either case, the $60 Daniel pays is offset against the forgiven amount of $100 in working out the gross forgiven amount of the debt: see sections 245-65 and 245-75 .