ATO Interpretative Decision
ATO ID 2003/286 (Withdrawn)
Income Tax
Commercial Debt Forgiveness - Forgiveness - Debt parkingFOI status: may be released
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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Where a commercial debt is acquired by an associate of the debtor ('new creditor') in the ordinary course of trading on a securities market, is the debt forgiven for the purposes of subsection 245-35(4) of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. Subsection 245-35(4) of Schedule 2C to the ITAA 1936 does not apply as the debt was acquired by the new creditor in the ordinary course of trading on a securities market.
Facts
After 27 June 1996 a creditor sold a debt security to another person ('new creditor') in the ordinary course of trading on the Australian Stock Exchange (ASX). The new creditor is an associate of the debtor.
The debt security is a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
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.
Subsection 245-35(4) of Schedule 2C to the ITAA 1936 applies:
If:
Paragraph 245-35(4)(a) of Schedule 2C to the ITAA 1936 applies as the sale of the debt security to the new creditor on the Australian Stock Exchange (ASX) constitutes the assignment of the right to receive payment to another person.
Paragraph 245-35(4)(b) of Schedule 2C to the ITAA 1936 applies as the new creditor is an associate of the debtor.
Subsection 245-35(6) of Schedule 2C to the ITAA 1936 defines securities market as:
'means a market, exchange or other place on which, or a facility by means of which, offers to sell, buy or exchange securities (within the meaning of Division 16E of Part III) are made or accepted'.
The sale of the debt security on the ASX is trading on a securities market for the purposes of applying paragraph 245-35(4)(c) of Schedule 2C to the ITAA 1936.
As the debt security was sold in the ordinary course of trading on a securities market, the debt is not forgiven under subsection 245-35(4) of Schedule 2C to the ITAA 1936.
Date of decision: 11 April 2003Year of income: Year ended 30 June 2003
Legislative References:
Tax Assessment Act 1936
Division 16E
section 318
Schedule 2C
Schedule 2C, section 245-10
Schedule 2C, section 245-25
Schedule 2C, subsection 245-35(4)
Schedule 2C, paragraph 245-35(4)(a)
Schedule 2C, paragraph 245-35(4)(b)
Schedule 2C, paragraph 245-35(4)(c)
Schedule 2C, subsection 245-35(6)
Keywords
Debt forgiveness
Debt waivers
ISSN: 1445-2782
| Date: | Version: | |
| 11 April 2003 | Original statement | |
| You are here | 21 November 2008 | Archived |