ATO Interpretative Decision
ATO ID 2004/516 (Withdrawn)
Income Tax
Commercial debt forgiveness: residual forgiven amount -cost base of assetsFOI 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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.This document incorporates revisions made since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.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 debtor, during the forgiveness year of income, provides a creditor with a CGT asset as part consideration for the forgiveness of a commercial debt, can Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) operate to reduce the cost bases of the CGT asset?
Decision
Yes. Pursuant to subsection 245-165(1) of Schedule 2C to the ITAA 1936 the reducible assets of a debtor are the debtor's CGT assets (other than excluded assets) as at the beginning of the forgiveness year of income.
Facts
A commercial debt of Debtor was forgiven after 27 June 1996.
During the forgiveness year of income Debtor transferred the ownership of a CGT asset to Creditor as part consideration for the forgiveness of the debt.
The CGT asset was not an 'excluded asset' as defined in section 245-170 of Schedule 2C to the ITAA 1936.
During the forgiveness year of income, Debtor owned no other CGT assets.
As a result of the forgiveness of the debt, Debtor had a residual forgiven amount, as defined in subsection 245-165(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 a forgiveness of a commercial debt occurred after 27 June 1996.
Section 245-175 of Schedule 2C to the ITAA 1936 requires that the Debtor's residual forgiven amount is to be applied to the maximum extent possible, in reduction of the relevant cost bases of the Debtor's reducible assets.
Subsection 245-165(1) of Schedule 2C to the ITAA 1936 states that a reducible asset means a CGT asset (other than an excluded asset) of the debtor at the beginning of the forgiveness year of income.
Accordingly, the fact that Debtor transferred ownership of the CGT asset to Creditor during the forgiveness year of income, does not preclude the CGT asset from being a reducible asset of Debtor's.
Date of decision: 15 June 2004Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1936
Schedule 2C
section 245-10
subsection 245-165(1)
section 245-170
section 245-175
Keywords
CDF cost bases of assets
Commercial debt
Commercial debt forgiveness
Debt forgiveness
Debt waivers
Residual forgiven amount
ISSN: 1445-2782
| Date: | Version: | |
| 15 June 2004 | Original statement | |
| You are here | 5 March 2010 | Archived |
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