Income Tax Assessment Act 1997



Division 245 - Forgiveness of commercial debts  

Subdivision 245-C - Calculation of gross forgiven amount of a debt  

Working out the value of a debt

SECTION 245-55   General rule for working out the value of a debt  

The value of your debt at the time (the forgiveness time ) when it is *forgiven is the amount that would have been its *market value (considered as an asset of the creditor) at the forgiveness time, assuming that:

(a) when you incurred the debt, you were able to pay all your debts (including that one) as and when they fell due; and

(b) your capacity to pay the debt is the same at the forgiveness time as when you incurred it.

However, the value of the debt at the forgiveness time is the sum of the following amounts, if that sum is less than the amount applicable under subsection (1):

(a) what would have been the amount applicable under subsection (1) if there had been no change, from the time the debt was incurred until the forgiveness time, in any rate of interest, or rate of exchange between currencies, that affects the *market value of the debt;

(b) each amount:

(i) that you have deducted or can deduct as a result of the *forgiveness of the debt; and

(ii) that is attributable to such a change.

Paragraph (1)(a) does not apply to the debt if:

(a) either:

(i) the creditor was an Australian resident at the forgiveness time; or

(ii) the *forgiveness of the debt was a *CGT event involving a *CGT asset that was *taxable Australian property; and

(b) you and the creditor were not dealing with each other at *arm ' s length in respect of you incurring the debt; and

(c) the debt was not a *moneylending debt.


This subsection reduces your gross forgiven amount to reflect the reduction in the creditor ' s loss on the forgiven debt under the capital gains tax regime.

This section has effect subject to sections 245-60 and 245-61 (about non-recourse and assigned debts).


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