ATO Interpretative Decision

ATO ID 2003/41

Fringe Benefits Tax

Commercial Debt Forgiveness: waiver of employee's obligation - fringe benefit
FOI status: may be released

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Issue

Do the commercial debt forgiveness provisions contained in Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply where an enforceable obligation of an employee was waived by an employer and the waiver of the obligation constitutes a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Decision

No. The provisions of Schedule 2C do not apply where the waiver of the obligation constitutes a fringe benefit within the meaning of the FBTAA 1986.

Facts

An employee was loaned $1 000 by their employer in 1998. In February 2001, for commercial reasons, the employer waived the obligation for the employee to repay the loan.

The waiving of the loan constituted a debt waiver fringe benefit for the purposes of Division 3 of the Fringe Benefits Tax Assessment Act 1986.

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.

The term 'debt' is defined in subsection 245-15(1) of Schedule 2C to the ITAA 1936 as '...an enforceable obligation imposed by law on a person to pay an amount to another person'.

That definition is subject to modification by subsection 245-15(2) of Schedule 2C to the ITAA 1936, which specifies that:

If such an obligation is waived and the waiver constitutes a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986, the debt constituted by the obligation is to be disregarded for the purposes of this Division.

Therefore Schedule 2C to the ITAA 1936 has no application to the forgiveness of the loan by the employer as the relevant debt is disregarded because of the operation of subsection 245-15(2) of Schedule 2C to the ITAA 1936.

Date of decision:  14 November 2002

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   section 245-10
   subsection 245-15(1)
   subsection 245-15(2)
   Schedule 2C

Fringe Benefits Tax Assessment Act 1986
   Division 3

Keywords
Debt waivers
Debt forgiveness

Business Line:  Losses and CGT Centre of Expertise

Date of publication:  28 February 2003

ISSN: 1445-2782

history
  Date: Version:
You are here → 14 November 2002 Original statement
  21 November 2008 Archived

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