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ATO Interpretative Decision

ATO ID 2003/582 (Withdrawn)

Income Tax

Commercial debt forgiveness - can a trustee forgive a debt for reasons of natural love and affection?
FOI status: may be released
  • This ATO ID is withdrawn as it does not accurately reflect/indicate the ATO view due to legislative changes contained in Tax Laws Amendment (Transfer of Provisions) Act 2010 (79 of 2010).
    This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Can paragraph 245-40(e) of the Income Tax Assessment Act 1997 (ITAA 1997) operate to cause Div245 of the ITAA1997 not to apply to a commercial debt owed by the beneficiary of a trust if the debt is forgiven by the trustee because of the relevant settlor's love and affection towards the beneficiary?

Decision

Yes. Paragraph 245-40(e) of the ITAA 1997 does not require that the trustee personally feel love and affection, only that the reason for forgiveness be natural love and affection

Facts

A beneficiary of a trust 'Debtor' incurred a debt in the form of a loan from the relevant trust.

The debt was a commercial debt for the purposes of section 245-10 of the ITAA 1997.

In November 2011 the debt was forgiven by the trustee of the relevant trust because he believed it was appropriate to do so because of the love and affection the settlor of the trust felt for the beneficiary.

Debtor was able to repay the debt at the time of forgiveness.

The trustee was a solicitor appointed by the settlor and did not personally feel love or affection for the beneficiary.

The forgiveness was not effected by a will.

Reasons for Decision

Paragraph 245-40(e) of the ITAA 1997 provides that Division 245 of the ITAA1997 does not apply where the debt is forgiven for reasons of natural love and affection.

The paragraph does not specify that Creditor, being the trustee of the trust, must personally feel love or affection towards Debtor only that the 'forgiveness is for reasons of natural love and affection'.

Date of decision:  23 June 2003

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1997
   Division 245
   Section 245-10
   Paragraph 245-40(e)

Keywords
Debt forgiveness
Debt waivers

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  18 July 2003

ISSN: 1445-2782

history
  Date: Version:
  23 June 2003 Original statement
You are here 5 April 2012 Archived

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