ATO Interpretative Decision

ATO ID 2004/517 (Withdrawn)

Income Tax

Commercial debt forgiveness: company deemed to have net forgiven amount - agreement for creditor to forgo capital loss
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This ATO ID is withdrawn from the database as it is a simple restatement of the law and does not contain an interpretative decision.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.

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.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 company is taken by Subdivision 245-G of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) to have a net forgiven amount, can it then make an agreement under section 245-90 of Schedule 2C to the ITAA 1936 with the creditor to reduce that net forgiven amount?

Decision

No. Subparagraph 245-90(2)(b)(ii) of Schedule 2C to the ITAA1936 provides that such an agreement reduces the debtor's 'provisional net forgiven amount', not any net forgiven amount that a company maybe taken to have under Subdivision 245-G of Schedule 2C to the ITAA 1936.

Facts

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

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, Creditor Company and Deemed Debtor Company were members of the same group of related companies.

Creditor Company made a capital loss for capital gains tax purposes as a result of the forgiveness of the relevant debt.

Under subsection 245-230(3) of Schedule 2C to the ITAA 1936 Deemed Debtor Company was taken to have a net forgiven amount in respect of the forgiveness.

Creditor Company and Deemed Debtor Company now want to make an agreement, under section 245-90 of Schedule 2C to the ITAA 1936, to reduce Deemed Debtor Company's net forgiven amount, through Creditor Company forgoing its relevant capital loss.

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.

Paragraph 245-90(2)(b) of Schedule 2C to the ITAA 1936 provides that the relevant agreed amount for the purposes of section 245-90 of Schedule 2C has the effect of reducing a debtor's 'provisional net forgiven amount', as defined in paragraph 245-85(2)(b) of Schedule 2C to the ITAA 1936.

This then results in the debtor having a net forgiven amount under subparagraph 245-90(2)(b)(iii) of Schedule 2C to the ITAA 1936.

Under subsection 245-230(3) of Schedule 2C to the ITAA 1936, Deemed Debtor Company was taken to have a net forgiven amount, not a provisional net forgiven amount, therefore section 245-90 of Schedule 2C to the ITAA 1936 cannot then be applied to reduce that net forgiven amount.

Note: An agreement under section 245-90 of Schedule 2C to the ITAA 1936 could have been made in the requisite period between Debtor Company and Creditor Company that would have reduced Debtor Company's net forgiven amount as calculated before the application of Subdivision 245-G of Schedule 2C to the ITAA 1936. This would then have resulted in Subdivision 245-G of Schedule 2C to the ITAA 1936 calculating a lesser net forgiven amount in respect of Deemed Debtor Company.

Date of decision: 15 June 2004

Year of income: Year ended 30 June 2004

Legislative References:
Income Tax Assessment Act 1936
   Schedule 2C
   section 245-10
   section 245-25
   paragraph 245-85(2)(b)
   section 245-90
   paragraph 245-90(2)(b)
   subparagraph 245-90(2)(b)(ii)
   subparagraph 245-90(2)(b)(iii)
   subsection 245-225(2)
   Subdivision 245-G
   subsection 245-230(3)

Keywords
Commercial debt
Commercial debt forgiveness
Debt forgiveness
Debt waivers
Net forgiven amount

Business Line: Losses and Capital Gains Tax Centre of Expertise

Date of publication: 25 June 2004

ISSN: 1445-2782

history

	Date:	Version:
	15 June 2004	Original statement
You are here	5 March 2010	Archived

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