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Is a taxation debt forgiven by the Commonwealth on the grounds of hardship a commercial debt for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?

No. The forgiven debt is not a commercial debt because subsection 245-25(4A) of Schedule 2C to the ITAA 1936 specifically excludes it from being a commercial debt.

An individual who operated a business as a sole trader owed the AustralianTaxation Office tax for a year which ended after 27 June 1996.

The individual applied to the Relief Board to be released from paying the Australian Taxation Office the unpaid tax.

The Relief Board released the individual from the debt having regard to hardship being suffered by them.

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

The amount of tax owing to the Australian Taxation Office was a debt owed to the Commonwealth relating to taxation.

Subsection 245-25(4A) of the ITAA 1936 provides that 'A debt owed to the Commonwealth that arose under a law relating to taxation is not a commercial debt'.