ATO Interpretative Decision

ATO ID 2003/283 (Withdrawn)

Income Tax

Commercial Debt Forgiveness: Forgiveness due to creditor assignment of debt - debt parking
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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

If a creditor assigns the right to receive payment of a commercial debt to a 'new creditor', who is an associate of the debtor, and the acquisition of this right by the new creditor is not in the ordinary course of trading on a securities market, is the debt forgiven for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. The assignment of the debt to the new creditor constitutes a forgiveness of the debt under subsection 245-35(4) of Schedule 2C to the ITAA 1936.

Facts

After 27 June 1996 a creditor assigned a debt to another person ('new creditor') who is an associate of the debtor.

The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.

The right to receive payment of the debt was not acquired by the new creditor in the ordinary course of trading on a securities market.

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.

Subsection 245-35(4) of Schedule 2C to the ITAA 1936 applies:

If:

(a)
the creditor, in relation to a debt, assigns the right to receive payment of the debt to another person (the "new creditor"); and

(b)
either:

(i)
the new creditor is an associate of the debtor; or

(ii)
......; and

(c)
the right to receive payment of the debt was not acquired by the new creditor in the ordinary course of trading on a securities market:

this Division has effect as if:

(d)
the debtor had, at the time of the assignment, been forgiven a debt (the "notional debt" ) equal to the amount of the assigned debt; and

(e)
the net forgiven amount of the notional debt were equal to the amount that would have been the net forgiven amount of the assigned debt if that debt had been forgiven instead of being assigned.

Accordingly, the debt assigned to the new creditor is forgiven for the purposes of Schedule 2C to the 1TAA 1936.

Date of decision: 11 April 2003

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   section 318
   Schedule 2C
   Schedule 2C, section 245-10
   Schedule 2C, section 245-25
   Schedule 2C, subsection 245-35(4)

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	21 November 2008	Archived

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