ATO Interpretative Decision
ATO ID 2003/809 (Withdrawn)
Income Tax
Commercial debt forgiveness - PAYG withholding taxation debt owed to the CommonwealthFOI status: may be released
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This ATOID is withdrawn as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since original publication.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is a Pay As You Go (PAYG) withholding taxation debt forgiven by the Commonwealth, a commercial debt for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) if interest paid or payable in respect of the debt is an allowable deduction?
Decision
No. Subsection 245-25(4A) of Schedule 2C to the ITAA 1936 specifically excludes it from being a commercial debt.
Facts
Debtor, a company, withheld tax from its employees wages pursuant to section 12-35 of the Taxation Administration Act 1953 (TAA 1953) for an income year which ended after 27 June 1996.
Debtor reported, but failed to remit this amount to the Australian Taxation Office and consequently it accumulated a PAYG withholding taxation debt (the debt).
This debt accrued General Interest Charge (GIC) which is deductible under paragraph 25-5(1)(c) of the Income Tax Assessment Act 1997 (ITAA 1997).
Debtor was subsequently released from paying the debt.
Reasons for Decision
Section 245-10 of Schedule 2C to the ITAA 1936 provides that Division 245 of the ITAA 1936 applies to the forgiveness of a commercial debt after 27 June 1996.
Subsection 245-25(2) of Schedule 2C to the ITAA 1936 provides that a debt is a commercial debt if the whole or any part of the interest paid or payable in respect of the debt is or would be allowable as a deduction to the debtor. That condition is satisfied here as the accrued GIC in relation to the debt is deductible to the debtor under paragraph 25-5(1)(c) of the ITAA 1997.
However, subsection 245-25(2) of the ITAA 1936 is subject to subsection 245-25(4A) of Schedule 2C to the ITAA 1936 which provides that a debt owed to the Commonwealth that arose under a law relating to taxation is not a commercial debt.
As PAYG withholding tax is imposed by the TAA 1953, a Commonwealth Taxation Act, the amount of PAYG withholding tax owing to the Australian Taxation Office is a debt owed to the Commonwealth relating to taxation.
Accordingly the PAYG withholding taxation debt is not a commercial debt so Schedule 2C to the ITAA 1936 has no application in the present circumstances.
Date of decision: 1 September 2003Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1936
Schedule 2C
Division 245
section 245-10
subsection 245-25(2)
subsection 245-25(4A)
paragraph 25-5(1)(c) Taxation Administration Act 1953
section 12-35
Keywords
Debt forgiveness
Debt waivers
ISSN: 1445-2782
| Date: | Version: | |
| 1 September 2003 | Original statement | |
| You are here | 12 March 2010 | Archived |