ATO Interpretative Decision
ATO ID 2003/531 (Withdrawn)
Income Tax
Commercial Debt Forgiveness - deemed consideration for a non-moneylending debt where debtor and creditor not dealing at arm's lengthFOI 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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 provides consideration in respect of the forgiveness of a non-moneylending debt that is less than the market value of the debt as at the time of the forgiveness, and the debtor and creditor were not dealing with each other at arm's length in connection with the forgiveness, will the debtor be taken to have paid consideration equal to the market value of the debt for the purposes of subsection 245-65(2) of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. Paragraph 245-65(2)(c) of Schedule 2C to the ITAA 1936 provides that where a debtor pays consideration in respect of the forgiveness of a non-moneylending debt that is greater or less than the market value of the debt as at the time of the forgiveness, and the debtor and creditor were not dealing with each other at arm's length in connection with the forgiveness, the debtor will be taken to have paid consideration equal to the market value of the debt as at the time of the forgiveness.
Facts
After 27 June 1996 Creditor forgave a debt owed by Debtor.
The consideration provided by Debtor in respect of the forgiveness of the debt was less than the market value of the debt as at the time of the forgiveness and Debtor and Creditor did not deal with each other at arm's length in connection with the forgiveness.
The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
The debt was not a moneylending debt as defined in subsection 245-245(1) 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.
Paragraph 245-65(2)(c) of Schedule 2C to the ITAA 1936 deems Debtor to have paid consideration equal to the market value of the debt as the consideration provided in respect of the debt forgiveness was less than the market value of the debt as at the time of forgiveness, and Debtor and Creditor were not dealing with each other at arm's length in connection with the forgiveness.
Date of decision: 27 February 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1936
Schedule 2C, section 245-10
Schedule 2C, section 245-25
Schedule 2C subsection 245-65(2)
Schedule 2C, paragraph 245-65(2)(c)
Schedule 2C, subsection 245-245(1)
Keywords
CDF consideration
Debt forgiven
ISSN: 1445-2782
| Date: | Version: | |
| 27 February 2003 | Original statement | |
| You are here | 21 November 2008 | Archived |