ATO Interpretative Decision
ATO ID 2003/431 (Withdrawn)
Income Tax
Commercial Debt Forgiveness - Notional value - Non-recourse debt - Manufacture of goods exception.FOI 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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 Debtor incurs a commercial debt, in the form of a non-recourse loan, to finance the manufacture of goods and the debt is forgiven, is the notional value of the debt calculated under section 245-60 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. Subsection 245-60(1) of Schedule 2C to the ITAA 1936 provides that section 245-60 of Schedule 2C does not apply where the debt was incurred in respect of the manufacture of goods.
Facts
Debtor incurred a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
The debt was incurred in respect of the manufacture of goods.
Upon the Debtor defaulting the rights of Creditor were limited to rights in relation to goods produced, supplied or services provided by means of the property.
After 27 June 1996 there was a default in the payment of the debt and subsequently Debtor's obligation to pay the debt was forgiven.
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.
The notional value of a non-recourse debt is calculated under section 245-60 of Schedule 2C to the ITAA 1936.
As the debt was incurred in financing the manufacture of goods, subsection 245-60(1) of Schedule 2C to the ITAA 1936 provides that the notional value of the debt is not to be calculated under section 245-60 of Schedule 2C.
Instead the notional value of the debt is to be calculated under section 245-55 of Schedule 2C to the ITAA 1936.
Date of decision: 14 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, section 245-55
Schedule 2C, section 245-60
Schedule 2C, subsection 245-60(1)
Keywords
Debt forgiveness
Debt waivers
ISSN: 1445-2782
| Date: | Version: | |
| 14 April 2003 | Original statement | |
| You are here | 21 November 2008 | Archived |