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ATO Interpretative Decision

ATO ID 2003/299 (Withdrawn)

Income Tax

Commercial debt forgiveness - what constitutes the forgiven debt if consideration is given in respect of the forgiveness?
FOI status: may be released
  • This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 consideration is paid or given for the forgiveness of a commercial debt, is the amount of the forgiven debt for the purposes of applying Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) the part of the debt no longer payable which has not been extinguished by the consideration?

Decision

No. Section 245-50 of Schedule 2C to the ITAA 1936 effectively provides that the relevant amount of the debt forgiven is the full amount of the debt owing before the forgiveness.

Facts

Debtor owed Creditor an amount of $500 000. This debt was a commercial debt within section 245-25 of Schedule 2C to the ITAA 1936.

After 27 June 1996, Creditor formally forgave the balance of the debt owing in consideration of Debtor paying an amount of $20 000.

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.

Section 245-50 of Schedule 2C to the ITAA 1936 states that:

'If any consideration is paid or given in respect of the forgiveness of a debt, the debt that is forgiven is taken to be:

(a)
the obligation that existed before the forgiveness to pay so much of the debt as is expressed, or is taken, to be forgiven; and
(b)
the obligation that existed before the forgiveness to pay any part of the debt to which paragraph (a) does not apply but which ceases to be payable as a result of the payment or giving of the consideration.'

The debt forgiven by Creditor will be taken to be an amount of $500 000. This amount comprises the proportion of the debt that is expressed to be forgiven ($480 000) and the proportion of the debt extinguished by the consideration ($20 000).

Date of decision:  14 March 2003

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C
   Schedule 2C, section 245-10
   Schedule 2C, section 245-25
   Schedule 2C, section 245-50

Keywords
CDF consideration
Debt forgiven

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  16 May 2003

ISSN: 1445-2782

history
  Date: Version:
  14 March 2003 Original statement
You are here 21 November 2008 Archived

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