ATO Interpretative Decision
ATO ID 2003/547 (Withdrawn)
Income Tax
Commercial debt forgiveness: assignment of a debt to an entity associated with the debtorFOI status: may be released
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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since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.
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Do the Commercial Debt Forgiveness provisions in Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply where a creditor assigns the right to receive payment of a commercial debt to an entity that is associated with the debtor?
Decision
Yes. The Commercial Debt Forgiveness provisions in Schedule 2C to ITAA 1936 apply when a creditor assigns the right to receive payment of a commercial debt to an entity that is associated with the debtor.
Facts
The original creditor assigned the right the payment of an outstanding commercial debt to an entity associated with the debtor.
The assignment of the right to receive payment of the outstanding commercial debt occurred after 27 June 1996.
Reasons for Decision
Subsection 245-35(4) of Schedule 2C to the ITAA 1936 defines 'Debt parking'.
The assignee of the debt is referred to as the 'new creditor'.
Paragraph 245-35(4)(b) of Schedule 2C to the ITAA 1936 provides that where the 'new creditor' is an associate of the debtor, then paragraph 245-35(4)(d) of Schedule 2C has affect as if:
'(d) the debtor had, at the time of the assignment, been forgiven a debt (the
notional debt
) equal to the amount of the assigned debt; and'
Further, paragraph 245-35(4)(d) of Schedule 2C to the ITAA 1936 provides that the debt is taken to be forgiven at the time the debt is assigned.
Paragraph 245-35(4)(e) of Schedule 2C to the ITAA 1936 provides that Schedule 2C to the ITAA 1936 has effect as if:
'(e) the net forgiven amount of the notional debt were equal to the amount that would have been the net forgiven amount of the assigned debt if that debt had been forgiven instead of being assigned'
Accordingly, where a debt is assigned to a new creditor that is associated with the debtor, then the debtor will be taken to have had a debt forgiven as at the time of assignment.
The notional value of the debt that is forgiven is calculated in accordance with section 245-61 of Schedule 2C to the ITAA 1936.
The consideration in respect of the debt is ascertained under subsection 245-65(3) of Schedule 2C to the ITAA 1936.
Date of decision: 5 March 2003Year of income: Year ended 30 June 2003
Legislative References:
Income Tax Assessment Act 1936
subsection 245-35(4)
paragraph 245-35(4)(b)
paragraph 245-35(4)(d)
paragraph 245-35(4)(e)
section 245-61
subsection 245-65(3)
Keywords
CDF notional value
Commercial debt
Commercial debt forgiveness
Debt forgiveness
Debt parking
ISSN: 1445-2782
| Date: | Version: | |
| 5 March 2003 | Original statement | |
| You are here | 21 November 2008 | Archived |
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