ATO Interpretative Decision

ATO ID 2003/296 (Withdrawn)

Income Tax

Commercial debt forgiveness - no consideration paid or given in respect of the forgiveness of a debt
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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 no consideration is paid or given in respect of the forgiveness of a commercial debt, will the gross forgiven amount of the debt for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) be equal to the debt's notional value at the time of the forgiveness?

Decision

Yes. In accordance with subsection 245-75(1) of Schedule 2C to the ITAA 1936.

Facts

Debtor entered into an arm's length loan agreement with a financial institution (Lender) The loan constituted a commercial debt.

After 27 June 1996, for commercial reasons, Lender agreed to forgive the balance of the debt payable. No consideration was paid or given in respect of the forgiveness of the debt.

The notional value of the debt for the purposes of section 245-55 of Schedule 2C to the ITAA 1936 at the time of the forgiveness was $100 000.

Reasons for Decision

Subsection 245-75(1) of Schedule 2C to the ITAA 1936 provides that:

'Subject to subsection (3), if no consideration is paid or given, or taken to be paid or given, in respect of the forgiveness of the debt, the "gross forgiven amount" of the debt is an amount equal to the notional value of the debt at the time when the debt was forgiven.'

The notional value of the debt at the time of forgiveness was an amount of $100 000 determined in accordance with section 245-55 of Schedule 2C to the ITAA 1936.

In accordance with subsection 245-75(1) of Schedule 2C to the ITAA 1936, the gross forgiven amount of the debt is therefore $100 000.

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 245-55
   Schedule 2C, subsection 245-75(1)

Keywords
CDF consideration
Debt forgiveness
Gross forgiven amount

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

Copyright notice

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).