ATO Interpretative Decision

ATO ID 2003/548 (Withdrawn)

Income Tax

Commercial debt forgiveness - what is consideration for non-moneylending 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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Where a debtor is required to give both money and property in respect of the forgiveness of a non-moneylending debt, will the consideration for the forgiveness of the debt under section 245-65 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) be equal to the sum of the amounts of money paid and/or required to be paid and the market value of the property at the time of the forgiveness of the debt?

Decision

Yes, in accordance with subparagraph 245-65(1)(c)(i) of Schedule 2C to the ITAA 1936.

Facts

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

The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.

After 27 June 1996 Creditor agreed to forgive the balance of the debt owing in consideration of Debtor:

(i): paying an amount of money at the time of the forgiveness;
(ii): giving to Creditor property at its market value at the time of forgiveness; and
(iii): paying other amounts of money and giving other property on future specified dates.

Reasons for Decision

Section 245-10 of Schedule 2C to the ITAA 1936 applies where the forgiveness of a commercial debt occurs after 27 June 1996.

Subparagraph 245-65(1)(c)(i) of Schedule 2C to the ITAA 1936 provides that:

'Subject to subsection (2), the " consideration " in respect of the forgiveness of a debt (other than a debt to which subsection (3) or (4) applies) is:

...

(c)
if the debtor has paid or given, or is required to pay or give, both an amount or amounts of money and property other than money as a result of, or in respect of, the forgiveness of the debt:

(i)
if the debt is not a moneylending deb t- the sum of that amount or those amounts and the market value of the property at the time of the forgiveness;...'

The consideration given by Debtor for the debt forgiveness was therefore the sum of:

(i): The moneys paid or required to be paid;
(ii): The market value at the time of the forgiveness of the property given; and
(iii): The market value at the time of the forgiveness of the property to be given.

Date of decision: 27 February 2003

Year of income: Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C, section 245-10
   Schedule 2C, section 245-25
   Schedule 2C, section 245-65
   Schedule 2C, subparagraph 245-65(1)(c)(i)
   Schedule 2C, subsection 245-245(1)

Keywords
CDF consideration
Debt forgiven

Business Line: Losses and CGT Centre of Expertise

Date of publication: 11 July 2003

ISSN: 1445-2782

history

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

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