ATO Interpretative Decision

ATO ID 2003/522 (Withdrawn)

Income Tax

Commercial Debt Forgiveness - what are the record keeping requirements?
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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Does Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) require a debtor to keep records of a commercial debt that it has incurred?

Decision

Yes. A debtor that has incurred a commercial debt must keep records in relation to the matters outlined in subsection 245-265(1) of Schedule 2C to the ITAA 1936.

Facts

Debtor incurred a commercial debt as defined in section 245-25 of Schedule 2C to the ITAA 1936.

The debt was not a moneylending debt as defined in subsection 245-245(1) of Schedule 2C to the ITAA 1936.

Debtor and Creditor did not deal with each other at arm's length in respect of the incurring of the debt.

After 27 June 1996 Creditor forgave the debt owed by Debtor. Debtor paid consideration for the forgiveness of the debt.

Reasons for Decision

In accordance with subsection 245-265(1) of Schedule 2C to the ITAA 1936, Debtor must keep any records that are necessary to enable the following matters to be readily found out:

(a): the date that the debt was incurred;
(b): the identity of Creditor;
(c): the amount of the debt;
(d): the terms of repayment of the debt;
(e): Debtor's capacity at the time when the debt was incurred to pay the debt when it fell due (Note: this detail is required because the debt was not a moneylending debt and because Debtor and Creditor did not deal with each other at arm's length in respect of the incurring of the debt);

and

(f): The date Creditor forgave the debt and the consideration paid by Debtor in respect of the forgiveness.

Debtor is required to maintain those records for a period of five years after forgiveness of the debt in accordance with paragraph 245-265(4)(a) of Schedule 2C to the ITAA 1936.

Date of decision: 27 February 2003

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C, section 245-25
   Schedule 2C, subsection 245-245(1)
   Schedule 2C, subsection 245-265(1)
   Schedule 2C, paragraph 245-265(4)(a)

Keywords
Debt forgiveness

Business Line: Losses and CGT Centre of Expertise

Date of publication: 4 July 2003

ISSN: 1445-2782

history

	Date:	Version:
	27 February 2003	Original statement
You are here	21 November 2008	Archived

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