ATO Interpretative Decision

ATO ID 2003/284 (Withdrawn)

Income Tax

Commercial Debt Forgiveness - is debt forgiven where extinguished by the giving of property other than cash?
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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Where a commercial debt is extinguished by a debtor giving property other than cash, is the debt forgiven for the purposes of subsection 245-35(1) of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

Yes. A debt is forgiven under subsection 245-35(1) of Schedule 2C to the ITAA 1936 where the debtor's obligation to pay the debt is extinguished other than by payment of the whole of the debt in cash.

Facts

After 27 June 1996, a debtor extinguished a commercial debt by providing a creditor with property other than cash. The market value of the property at the time of the forgiveness equalled the notional value of the debt under section 245-55 of Schedule 2C to the ITAA 1936.

Reasons for Decision

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

Subsection 245-35(1) of Schedule 2C to the ITAA 1936 specifies that a debt is forgiven if the debtor's obligation to pay the debt is released or waived, or is otherwise extinguished.

The property given to the creditor is consideration under paragraph 245-65(1)(b) of Schedule 2C to the ITAA 1936.

As the notional value of the debt equals the consideration in respect of the debt at the time of the forgiveness, paragraph 245-75(2)(b) of Schedule 2C to the ITAA 1936 provides that there is no forgiven amount in respect of the debt. Therefore, Subdivisions 245-D to 245-G of Schedule 2C to the ITAA 1936 have no application to that debt.

Date of decision: 11 April 2003

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C
   Schedule 2C, section 245-10
   Schedule 2C, subsection 245-35(1)
   Schedule 2C, section 245-55
   Schedule 2C, paragraph 245-65(1)(b)
   Schedule 2C, paragraph 245-65(2)(b)
   Subdivision 245-D
   Subdivision 245-E
   Subdivision 245-F
   Subdivision 245-G

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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