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Draft Taxation Determination

TD 93/D143

Income tax: if a moneylender (A) sells its loan book to a taxpayer (B) and later B writes off some of the debts in the loan book as bad, can B claim those bad debts as deductions under paragraph 63(1)(b)?

  • Please note that the PDF version is the authorised version of this draft ruling.
    This document has been finalised by TD 93/152.

FOI status:

draft only - for comment

Preamble

Draft Taxation Determinations (TDs) represent the preliminary, though considered, views of the ATO. Draft TDs may not be relied on; only final TDs are authoritative statements of the ATO.

1. No. Deductions for bad debts are only allowable under paragraph 63(1)(b) of the Income Tax Assessment Act 1936 where those bad debts are in respect of money lent in the ordinary course of a moneylending business carried on by the taxpayer claiming the deduction (see FCT v. National Commercial Banking Corporation of Australia Ltd 83 ATC 4715, at p. 4719, (1983) 15 ATR 21; 15 TBRD Case 49 at p. 383; 3 TBRD (NS) Case C3 at p. 17).

2. The purchase of an existing debt from another person is not a loan of money by the purchaser of the debt. A deduction is not, therefore, allowable under paragraph 63(1)(b) for a bad debt where that debt was purchased from another person. This is the case whether or not the person who originally lent the money did so in the ordinary course of a business of moneylending.

NB. This issue was originally considered in Draft TD 92/5. Draft TD 92/5 is withdrawn.

Commissioner of Taxation
3 June 1993

References

ATO references:
NO 93/2965-0 (NO)

ISSN: 1038-8982

Related Rulings/Determinations:

TD 92/D5
TR 92/18

Subject References:
bad debts
moneylending
deductions
transfer of loan book

Legislative References:
ITAA 63(1)(b)

Case References:
FC of T v. National Commercial Banking Corporation of Australia Limited
83 ATC 4715
(1983) 15 ATR 21


Case 49
(1949) 15 TBRD

Case C3
3 TBRD (NS)

Case 12
3 CTBR (NS)


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