ATO Interpretative Decision

ATO ID 2003/338 (Withdrawn)

Income Tax

• This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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.

Issue

Is the calculation of the notional value of a non-recourse debt for the purposes of section 245-60 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) referable to the market value of the creditor's rights in respect of the debt?

Decision

Yes. Subsection 245-60(2) of Schedule 2C to the ITAA 1936 provides that the notional value of a non-recourse debt is the lesser of the amount of debt outstanding at time of forgiveness and the then market value of the creditor's rights, as determined in accordance with subsection 245-60(1) of Schedule 2C.

Facts

Debtor incurred a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936 with Creditor.

The debt was a non-recourse debt as defined in subsection 245-60(1) of Schedule 2C to the ITAA 1936.

After 27 June 1996 the debt was forgiven by Creditor within the meaning of section 245-35 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 occurred after 27 June 1996.

Subsection 245-60(2) of Schedule 2C to the ITAA 1936 provides that the notional value of a non-recourse debt at the time when a debt is forgiven is the lesser of:

'(a)

the amount of the non-recourse debt outstanding at that time;

(b)

the market value at that time of the creditor's rights referred to in subsection (1) of this section.'

Subsection 245-60(1) of Schedule 2C to the ITAA 1936 specifies that the 'creditor's rights are:

'(a)

rights (including the right to moneys payable) in relation to all or any of the following:

(i)

the property or use of the property

(ii)

goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the property;

(iii)

the loss disposal of the whole or a part of the property or of the debtor's interest in the property.

(b)

rights in respect of a mortgage or other security over the property;

(c)

rights arising out of any arrangement relating to the financial obligation, in relation to the property, of the end-user of the property towards the debtor.'

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 245-35
   Schedule 2C, section 245-60
   Schedule 2C, subsection 245-60(1)
   Schedule 2C, subsection 245-60(2)

Keywords
Commercial debt forgiveness
Debt waivers
Debt forgiveness

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  15 May 2003

ISSN: 1445-2782