ATO Interpretative Decision
ATO ID 2003/302 (Withdrawn)
Income Tax
Commercial debt forgiveness - release of debt by debt/equity swapFOI 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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 released by a creditor in return for the issue of shares in a debtor (a debt/equity swap) is the debt forgiven under Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. The debt that is released by a creditor in return for the issue of shares in a debtor is forgiven under subsection 245-35(1) of Schedule 2C to the ITAA 1936.
Facts
After 27 June 1996 a debtor company is released from a debt in return for issuing shares to a creditor.
The debt 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(1) of Schedule 2C to the ITAA 1936 provides that a debt is forgiven if the debtor's obligation to pay the debt is released or waived, or is otherwise extinguished. Accordingly, the release of the debt by the creditor pursuant to a debt/equity swap constitutes a forgiveness of the debt.
Note: Subsection 245-35(5) of Schedule 2C of the ITAA 1936 provides that a forgiveness of a debt also occurs where a debtor and creditor undertake a form of debt for equity swap with money subscribed by the creditor to acquire shares in the debtor. All or part of the money subscribed is applied by the debtor to discharge the debt, or part of it.
Date of decision: 11 April 2003Year 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, subsection 245-35(1)
Schedule 2C, subsection 245-35(5)
Keywords
Debt forgiveness
Debt waivers
ISSN: 1445-2782
| Date: | Version: | |
| 11 April 2003 | Original statement | |
| You are here | 21 November 2008 | Archived |