ATO Interpretative Decision

ATO ID 2003/308 (Withdrawn)

Income Tax

Commercial debt forgiveness - applying total net forgiven amount - reduction of net capital losses
FOI status: may be released

This Interpretative Decision is withdrawn as it is a duplication of ATO ID 2003/292.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 forgiven and the debtor has to apply a residual forgiven amount in reduction of net capital losses under Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936), does this reduction requirement include net capital losses that the debtor could not apply in working out if there was a net capital gain for the forgiveness year of income?

Decision

No. Section 245-130 of Schedule 2C to the ITAA 1936 only applies a residual forgiven amount in reduction of deductible net capital losses.

Facts

Debtor is a company.

Debtor has a residual forgiven amount to be applied under section 245-130 of Schedule 2C to the ITAA 1936 in reduction of deductible net capital losses.

Debtor made no capital gains or losses in the forgiveness year of income.

Due to a change in ownership and business Debtor has a net capital loss in respect of a year of income prior to the forgiveness year of income that Debtor is precluded by Subdivision 165-CA of the Income Tax Assessment Act 1997 (ITAA 1997) from applying in calculating whether there is a net capital gain in respect of the forgiveness year of income.

Reasons for Decision

Where commercial debts are forgiven after 27 June 1996, the total net forgiven amount in the forgiveness year of income must be applied, in accordance with the provisions of Schedule 2C to the ITAA 1936, to successively reduce the debtor's deductible revenue losses, deductible net capital losses, deductible expenditures and the relevant cost base of certain CGT assets.

Subsection 245-105(6) of Schedule 2C to the ITAA 1936 provides that, to the extent to which the total net forgiven amount cannot be applied to reduce deductible revenue losses, the remaining unapplied amount, referred to as the 'residual forgiven amount', must be applied to the maximum extent possible, to reduce deductible net capital losses incurred by the debtor in years of income before the forgiveness year of income.

Pursuant to section 245-125 of Schedule 2C to the ITAA 1936:

'deductible net capital loss means a net capital loss that:

(a)
the debtor has for an income year prior to the forgiveness year of income; and

(b)
apart from this Subdivision, could be applied in working out the debtor's net capital gain for the forgiveness year of income (assuming the debtor had enough net capital gains).'

Therefore the non-deductible net capital loss is not reduced under Schedule 2C to the ITAA 1936.

Date of decision: 26 March 2003

Year of income: Year ended 30 June 2002

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C
   Schedule 2C, section 245-125
   Schedule 2C, section 245-130
   Schedule 2C, subsection 245-105(6)

Income Tax Assessment Act 1997
Subdivision 165-CA

Keywords
CDF net capital losses
Commercial debt
Commercial debt forgiveness
Debt forgiven
Residual forgiven amount
Total net forgiven amount

Business Line: Losses and CGT Centre of Expertise

Date of publication: 16 May 2003

ISSN: 1445-2782

history

	Date:	Version:
	26 March 2003	Original statement
You are here	17 June 2003	Archived

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