ATO Interpretative Decision
ATO ID 2003/68 (Withdrawn)
Income Tax
Commercial debt forgiveness: private company forgives shareholder debtFOI status: may be released
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This ATO ID is withdrawn as it does not accurately reflect the ATO view.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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.
Issue
Where a private company forgives a debt owed to it by a shareholder and the amount forgiven was included in the assessable income of the shareholder under section 109F of the Income Tax Assessment Act 1936 (ITAA 1936), do the commercial debt forgiveness provisions contained in Schedule 2C to the ITAA 1936 apply?
Decision
No. The provisions of Schedule 2C to the ITAA 1936 do not apply where the forgiven amount is included in the assessable income of the debtor. The relevant forgiven amount is not a debt for the purposes of section 245-15 of Schedule 2C to the ITAA 1936.
Facts
An individual shareholder was loaned an amount by a private company on 1 December 1998.
The loan was made to the individual in their capacity as a shareholder of the company.
In March 2000 the company formally forgave the shareholder's debt of the amount.
Pursuant to section 109F of the ITAA 1936 the forgiven debt constitutes an assessable dividend paid to the shareholder.
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.
The term 'debt' is defined in subsection 245-15(1) of Schedule 2C to the ITAA 1936 as '_an enforceable obligation imposed by law on a person to pay an amount to another person'.
That definition is subject to modification by subsection 245-15(3) of Schedule 2C to the ITAA 1936, which specifies that:
An amount that, apart from this subsection, would be an enforceable obligation referred to in subsection (1) is not to be regarded as a debt if the amount has been, or will be, included in the assessable income of any year of income of the person on whom the obligation is imposed.
Therefore Schedule 2C to the ITAA 1936 has no application to the forgiveness by the company of the amount loaned to the shareholder as the relevant amount constitutes assessable income to the shareholder.
Date of decision: 19 November 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
section 109F
Schedule 2C
section 245-10
section 245-15
subsection 245-15(1)
subsection 245-15(3)
Keywords
Debt forgiveness
ISSN: 1445-2782
| Date: | Version: | |
| 19 November 2002 | Original statement | |
| You are here | 2 February 2007 | Archived |