ATO Interpretative Decision
ATO ID 2003/589 (Withdrawn)
Income TaxCommercial debt forgiveness - can a company forgive a debt for reasons of natural love and affection?
FOI status: may be released
This ATO ID is withdrawn as the position stated in this ATO ID no longer represents the ATO view. The ATO is developing guidance on this issue.This document has changed over time. View its history.
Status of this decision: Decision withdrawn 6 February 2019.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Can paragraph 245-40(c) of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) operate to cause the Schedule not to apply to a commercial debt which is forgiven by a company because of the company directors' love and affection towards the debtor?
Yes. Paragraph 245-40(c) of Schedule 2C to the ITAA 1936 does not require that the creditor be a natural person, only that the reason for forgiveness be 'natural love and affection'.
Debtor, a natural person, incurred a debt in the form of a loan from a company Creditor.
The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
After 27 June 1996 the debt was forgiven by Creditor in accordance with a resolution made by Creditor's directors for reasons of their natural love and affection for Debtor.
Debtor was able to repay the debt at the time of forgiveness.
Debtor was not an employee of Creditor.
Fringe Benefits Tax was not payable in respect of the forgiveness.
Reasons for Decision
Section 245-10 of Schedule 2C to the ITAA 1936 provides that Schedule 2C applies where a forgiveness of a commercial debt occurs after 27 June 1996.
Paragraph 245-40(c) of Schedule 2C to the ITAA 1936 provides that Schedule 2C does not apply where the debt is forgiven for reasons of natural love and affection.
The paragraph does not specify that Creditor must be a natural person. It only requires that the debt was 'forgiven for reasons of natural love and affection'.Date of decision: 23 June 2003
Year of income: Year ended 30 June 2003