ATO Interpretative Decision

ATO ID 2003/280 (Withdrawn)

Income Tax

Commercial Debt Forgiveness - debt on which no interest is payable
FOI status: may be released

This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is a debt on which no interest is paid or payable a 'commercial debt' under section 245-25 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) if, had interest been payable, that interest would have been an allowable deduction to the debtor?

Decision

Yes. The debt is a commercial debt pursuant to subsection 245-25(3) of Schedule 2C to the ITAA 1936.

Facts

Debtor required short-term funds to finance its working capital requirements and for this purpose drew a finance bill (the bill) on the acceptor (Creditor).

Upon maturity of the bill, the Debtor only repaid part of the face value of the bill.

After 27 June 1996, the Creditor was deemed to have forgiven the unpaid balance of the bill pursuant to a creditor's deed of arrangement.

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.

No interest is payable on the bill drawn by the Debtor. Instead, the Debtor is liable to pay the discount on the bill, which is the difference between the funding it actually receives and the face value of the bill which Debtor repays on its maturity.

Had interest been paid or payable by the Debtor in respect of the debt it would have been deductible to the Debtor. Accordingly, the debt is a commercial debt as defined in subsection 245-25(3) of Schedule 2C to the ITAA 1936.

Date of decision: 27 February 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C
   Schedule 2C, section 245-10
   Schedule 2C, section 245-25
   Schedule 2C, subsection 245-25(3)

Keywords
Debt forgiveness

Business Line: Losses and CGT Centre of Expertise

Date of publication: 16 May 2003

ISSN: 1445-2782

history

	Date:	Version:
	27 February 2003	Original statement
You are here	21 November 2008	Archived

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