ATO Interpretative Decision

ATO ID 2004/376 (Withdrawn)

Income Tax

Commercial debt forgiveness - creditor company is group member with deductible revenue losses
FOI status: may be released

This ATO ID is withdrawn as it is a straight application of the law and does not contain an interpretative decision.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Status of this decision: Decision Withdrawn 15 January 2010

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Where a debt incurred by a debtor company is forgiven by a creditor company that is a member of the same group of related companies, can the creditor company, under section 245-230 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) be taken to have a net forgiven amount in respect of the forgiveness if it has deductible revenue losses?

Decision

Yes. The definition of 'non-debtor company' in subsection 245-245(1) of Schedule 2C to the ITAA 1936 does not exclude companies on the basis that they were the creditor.

Facts

After 27 June 1996, Debtor Company was forgiven a debt.

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

For the purposes of subsection 245-225(2) of Schedule 2C to the ITAA 1936, Debtor Company and Creditor Company were members of the same group of related companies.

Creditor Company is the only company in the group of related companies to have deductible revenue losses for the purposes of subsection 245-230(1) of Schedule 2C to the ITAA 1936.

Reasons for Decision

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

Pursuant to section 245-230 of Schedule 2C to the ITAA 1936, where one or more non-debtor companies in the group of related companies have deductible revenue losses, what would otherwise be the Debtor Company's net forgiven amount is disregarded, except for the purposes of Subdivision 245-G of Schedule 2C to the ITAA 1936.

The term 'non-debtor company' is defined in subsection 245-245(1) of Schedule 2C to the ITAA 1936 as meaning a company in the group other than the company that incurred the debt.

Accordingly, Creditor Company is a non-debtor company, despite having been the relevant creditor. As Creditor Company has deductible revenue losses for the purposes of subsection 245-230(1) of Schedule 2C to the ITAA 1936 the formula in subsection 245-230(3) of Schedule 2C to the ITAA 1936 applies:

Company's deductible revenue losses / (Total deductible revenue losses' * disregarded net forgiven amount)

As Creditor Company is the only group company to have deductible revenue losses, then pursuant to the formula, it is now taken to have a net forgiven amount equal to the Debtor company's disregarded net forgiven amount.

Date of decision: 13 April 2004

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C
   section 245-10
   section 245-25
   subsection 245-225(2)
   Subdivision 245-G
   section 245-230
   subsection 245-230(1)
   subsection 245-230(3)
   subsection 245-245(1)

Keywords
Debt forgiveness

Business Line: Losses and CGT Centre of Expertise

Date of publication: 7 May 2004

ISSN: 1445-2782

history

	Date:	Version:
	13 April 2004	Original statement
You are here →	15 January 2010	Archived

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