ATO Interpretative Decision

ATO ID 2003/281 (Withdrawn)

Income Tax

Commercial Debt Forgiveness - Forgiveness due to liquidation
FOI status: may be released

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Where a company's obligation to pay a commercial debt is extinguished because the company is liquidated does Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply?

Decision

Yes. The debt is forgiven for the purposes of subsection 245-35(1) of Schedule 2C to the ITAA 1936.

Facts

After 27 June 1996 a company's obligation to pay a debt is extinguished because of a formal release of the debt when the company is liquidated.

The debt is a commercial debt for the purposes of section 245-25 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.

Subsection 245-35(1) of Schedule 2C to the ITAA 1936 provides that a debt is forgiven if the debtor's obligation to pay the debt is released or waived, or is otherwise extinguished. Accordingly, the debt is forgiven as the company's obligation to pay the debt is legally extinguished because of its release during liquidation.

Paragraph 245-40(a) of Schedule 2C to the ITAA 1936 does not apply to disregard the relevant forgiveness because the liquidation of a company does not occur under an Act related to bankruptcy.

Date of decision: 11 April 2003

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C
   section 245-10
   section 245-25
   subsection 245-35(1)
   paragraph 245-40(a)

Keywords
Debt forgiveness
Debt waivers

Business Line: Losses and CGT Centre of Expertise

Date of publication: 16 May 2003

ISSN: 1445-2782

history

	Date:	Version:
	11 April 2003	Original statement
You are here	5 April 2012	Archived

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