ATO Interpretative Decision

ATO ID 2003/548

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Where a debtor is required to give both money and property in respect of the forgiveness of a non-moneylending debt, will the consideration for the forgiveness of the debt under section 245-65 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) be equal to the sum of the amounts of money paid and/or required to be paid and the market value of the property at the time of the forgiveness of the debt?

Decision

Yes, in accordance with subparagraph 245-65(1)(c)(i) of Schedule 2C to the ITAA 1936.

Facts

Debtor incurred a debt that was not a moneylending debt as defined in subsection 245-245(1) of Schedule 2C to the ITAA 1936.

The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.

After 27 June 1996 Creditor agreed to forgive the balance of the debt owing in consideration of Debtor:

(i)

paying an amount of money at the time of the forgiveness;

(ii)

giving to Creditor property at its market value at the time of forgiveness; and

(iii)

paying other amounts of money and giving other property on future specified dates.

Reasons for Decision

Section 245-10 of Schedule 2C to the ITAA 1936 applies where the forgiveness of a commercial debt occurs after 27 June 1996.

Subparagraph 245-65(1)(c)(i) of Schedule 2C to the ITAA 1936 provides that:

'Subject to subsection (2), the " consideration " in respect of the forgiveness of a debt (other than a debt to which subsection (3) or (4) applies) is:

...

(c)

if the debtor has paid or given, or is required to pay or give, both an amount or amounts of money and property other than money as a result of, or in respect of, the forgiveness of the debt:

(i)

if the debt is not a moneylending deb t- the sum of that amount or those amounts and the market value of the property at the time of the forgiveness;...'

The consideration given by Debtor for the debt forgiveness was therefore the sum of:

(i)

The moneys paid or required to be paid;

(ii)

The market value at the time of the forgiveness of the property given; and

(iii)

The market value at the time of the forgiveness of the property to be given.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C, section 245-10
   Schedule 2C, section 245-25
   Schedule 2C, section 245-65
   Schedule 2C, subparagraph 245-65(1)(c)(i)
   Schedule 2C, subsection 245-245(1)

Keywords
CDF consideration
Debt forgiven

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  11 July 2003

ISSN: 1445-2782