ATO Interpretative Decision
ATO ID 2003/294 (Withdrawn)
Income Tax
Commercial debt forgiveness - applying total net forgiven amount - partnerships and partners.FOI status: may be released
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This ATO ID is withdrawn as it is a straight application of the law and does not contain an interpretative decision.This document incorporates revisions made since original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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 pursuant to Schedule 2C to the Tax Assessment Act 1936 (ITAA 1936) a partnership has a total net forgiven amount and that amount can not be fully applied by the partnership in reduction of its deductible expenditure is the unapplied amount then disregarded?
Decision
No. Section 245-15 of Schedule 2C to the ITAA 1936 provides that each partner is taken to have had a debt forgiven in the forgiveness year of income. The respective amount of debt forgiven being based upon the partner's proportionate share of the net income or loss of the partnership in the forgiveness year of income.
Facts
The partnership is not a corporate limited partnership for the purposes of section 245-105 of Schedule 2C to the ITAA 1936.
There were three individual partners in the partnership. A written partnership agreement existed and the effect of the agreement was to allocate all net income and losses of the partnership equally between the partners.
The partnership had a commercial debt forgiven after 27 June 1996.
The net forgiven amount of the debt was $18 000 and as this was the only debt forgiven in favour of the partnership in the forgiveness year of income the total net forgiven amount of the partnership for the purposes of subsection 245-105(1) of Schedule 2C to the ITAA 1936 was also $18 000.
The partnership had deductible expenditure as defined by subsection 245-140 of Schedule 2C to the ITAA 1936 of $6 000.
The partnership made a partnership loss of $30 000 in the forgiveness year of income.
Reasons for Decision
Where commercial debts owed by a partnership are forgiven after 27 June 1996, the total net forgiven amount for the particular income year must be applied, in accordance with the commercial debt forgiveness provisions of Schedule 2C to the ITAA 1936, to reduce the partnership's deductible expenditure.
Where the total net forgiven amount cannot be fully applied by the partnership each partner is then taken by subsection 245-215(3) of Schedule 2C to the ITAA 1936 to have had a debt forgiven in the forgiveness year of income based upon the partner's respective share of the partnership loss in the forgiveness year of income multiplied by the residual amount.
Accordingly, each partner is taken to have had a debt forgiven in the forgiveness year of income of one third of the residual amount of ($18 000 - $6 000). That is $4 000 each.
Note: Where a partnership has a net income in the forgiveness year of income subsection 245-215(4) of Schedule 2C to the ITAA 1936 similarly provides that each partner is taken to have had a debt forgiven in the forgiveness year of income based upon the partner's respective share of the partnership net income of that income year multiplied by the residual amount.
Date of decision: 7 March 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1936
Subdivision 245-E
Schedule 2C, subsection 245-105(1)
Schedule 2C, subsection 245-215(3)
Schedule 2C, subsection 245-215(4)
Schedule 2C, section 245-105
Schedule 2C, section 245-140
Schedule 2C, section 245-215
Keywords
CDF partners
CDF partnerships
Commercial debt
Commercial debt forgiveness
Commercial debt forgiveness and partners
Debt forgiven
Net forgiven amount
Total net forgiven amount
ISSN: 1445-2782
| Date: | Version: | |
| 7 March 2003 | Original statement | |
| You are here | 15 January 2010 | Archived |