ATO Interpretative Decision
ATO ID 2003/64 (Withdrawn)
Income Tax
Commercial debt forgiveness: trade debt forgivenFOI status: may be released
-
This ATO Interpretative Decision is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act that doesn't apply after the 2009-2010 income year. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be a precedential view in respect of decisions for income years up to, and including, the 2009-2010 income year.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 taxpayer has a trade debt forgiven, is this a 'debt' for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. The definition of 'debt' in subsection 245-15(1) of Schedule 2C to the ITAA 1936 includes a trade debt.
Facts
A debtor incurred a trade debt in September 2001 by way of a properly executed written contract.
Interest became payable in respect of the debt when it was not fully paid within 30 days. The interest expense was an allowable deduction.
In April 2002, the trade creditor, having regard to the debtor's financial problems, entered into a formal deed of release of the amount of outstanding debt as at that date.
Reasons for Decision
Subsection 245-15(1) of Schedule 2C to the ITAA 1936 defines debt as 'an enforceable obligation imposed by law on a person to pay an amount to another person'.
The term 'enforceable obligation' encompasses debts owing to a trade creditor.
Section 245-25 of Schedule 2C to the ITAA 1936 provides that a 'commercial debt' includes a debt on which interest paid is an allowable deduction.
Date of decision: 19 November 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
Schedule 2C
subsection 245-15(1)
section 245-25
Keywords
Debt forgiveness
ISSN: 1445-2782
| Date: | Version: | |
| 19 November 2002 | Original statement | |
| You are here | 5 April 2012 | Archived |