ATO Interpretative Decision

ATO ID 2003/273 (Withdrawn)

Income Tax

Commercial debt forgiveness: commercial debt - 'exception provision' - section 51AD of the Income Tax Assessment Act 1936
FOI status: may be released
Status of this decision: Decision Withdrawn 15 January 2010
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.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is a debt a commercial debt for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) where interest paid in respect of the debt would be allowable as a deduction, apart from the operation of section 51AD of the ITAA 1936?

Decision

Yes. The debt is a commercial debt because section 51AD of the ITAA 1936 is an exception provision for the purposes of subsection 245-25(2) of Schedule 2C to the ITAA 1936.

Facts

Interest paid by a debtor in respect of a loan was not deductible solely because of the operation of section 51AD of the ITAA 1936.

After 27 June 1996 the lender forgave the loan.

Reasons for Decision

Section 245-10 of Schedule 2C to the ITAA 1936 provides that Schedule 2C to the ITAA 1936 applies where a forgiveness of a commercial debt occurs after 27 June 1996.

The term 'commercial debt' is defined in section 245-25 of Schedule 2C to the ITAA 1936.

Paragraph 245-25(2)(b) of Schedule 2C to the ITAA 1936 provides that a debt is a 'commercial debt' if the whole or any part of interest paid or payable in respect of the debt would be allowable apart from the operation of an 'exception provision'.

The term 'exception provision' is defined in subsection 245-25(5) of Schedule 2C to the ITAA 1936 as follows:

"exception provision" means a provision of this Act that has the effect of preventing a deduction that would otherwise be allowable, but does not include paragraphs 8-1(2)(a), (b) and (c) of the Income Tax Assessment Act 1997 (which prevent deductions for capital, private or domestic outgoings and for outgoings relating to exempt income).

Section 51AD of the ITAA 1936 is therefore an exception provision for the purposes of paragraph 245-25(2)(b) of Schedule 2C to the ITAA 1936

Accordingly, as the debt is a commercial debt, Schedule 2C to the ITAA 1936 applies to the forgiveness of the debt.

Date of decision:  2 April 2003

Year of income:  Year ending 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   section 51AD
   Schedule 2C
   section 245-10
   section 245-25
   subsection 245-25(2)
   paragraph 245-25(2)(b)
   subsection 245-25(5)

Keywords
Debt waivers
Debt forgiveness

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  29 April 2003

ISSN: 1445-2782

history
  Date: Version:
  2 April 2003 Original statement
You are here → 15 January 2010 Archived

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