ATO Interpretative Decision
ATO ID 2003/318 (Withdrawn)
Income Tax
Commercial debt forgiveness: right to enforce debt ended due to statute of limitationsFOI 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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 creditor is no longer able to sue for the recovery of an outstanding commercial debt is the debt forgiven for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. Subsection 245-35(2) of Schedule 2C to the ITAA 1936 provides that a debt is forgiven if the period in which a creditor is entitled to sue for the recovery of the debt has ended because of the operation of a statute of limitations.
Facts
Debtor incurred a commercial debt as defined in section 245-25 of Schedule 2C to the ITAA 1936.
After 27 June 1996 Creditor ceased to be entitled to sue for the recovery of the outstanding amount of the debt due to the operation of a statute of limitations.
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.
Where a statute of limitations operates such that a Creditor is no longer entitled to sue for the recovery of a commercial debt the debt is deemed to have been forgiven under subsection 245-35(2) of the ITAA 1936 even if the Debtor still intends to pay some or all of the forgiven debt.
Date of decision: 3 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(2)
Keywords
Commercial debt forgiveness
Debt extinguished
Debt forgiven
ISSN: 1445-2782
| Date: | Version: | |
| 3 April 2003 | Original statement | |
| You are here | 21 November 2008 | Archived |