ATO Interpretative Decision

ATO ID 2003/69 (Withdrawn)

Income Tax

Commercial Debt Forgiveness - application where a company is forgiven a 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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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.

Status of this decision: Decision Withdrawn 21 November 2008

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Do the commercial debt forgiveness provisions contained in Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply where a company is forgiven a commercial debt after 27 June 1996?

Decision

Yes. The provisions of Schedule 2C of the ITAA 1936 applies to the forgiveness of a commercial debt owed by a company.

Facts

After 27 June 1996, a company borrowed funds from an unrelated lender. Interest payable by the company in respect of the loan was an allowable deduction.

Several months later the lender made a commercial decision to forgive, by way of a release, the loan to the company.

Reasons for Decision

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

The term 'debt' is defined in subdivision 245-15(1) of Schedule 2C to the ITAA 1936 as '....an enforceable obligation imposed by the law on a person to pay an amount to another person'. The term 'person' is defined in subsection 6(1) of the ITAA 1936 as including a company. Therefore, the loan made to the company is a 'debt' for the purposes of section 245-15 of Schedule 2C to the ITAA 1936.

As interest paid by the company in respect of the loan is an allowable deduction, the debt constitutes a 'commercial debt' for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.

The release of the debt constitutes the forgiveness of a debt for the purposes of subsection 245-15(1) of Schedule 2C to the ITAA 1936.

Date of decision: 18 November 2002

Year of income: Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1936
   subsection 6(1)
   Schedule 2C
   section 245-10
   section 245-15
   subsection 245-15(1)
   section 245-25
   subsection 245-35(1)

Related ATO Interpretative Decisions
ATO ID 2003/27
ATO ID 2003/41
ATO ID 2003/66

Keywords
Debt waivers
Debt forgiveness

Business Line: Losses and CGT Centre of Expertise

Date of publication: 15 March 2003

ISSN: 1445-2782

history

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

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