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Is a loan a debt for the purposes of applying Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) where the debtor was not due to repay any amount in respect of the loan as at the time of forgiveness?

Yes. Subsection 245-15(1) of Schedule 2C to the ITAA 1936 whilst requiring that a 'debt' must be a legally enforceable obligation does not specify that a debtor must have a present liability to repay any amount in respect of a loan at the time of forgiveness for a loan to constitute a debt for the purposes of Schedule 2C.

Debtor borrowed money from Lender in the form of a loan.

After 27 June 1996 Lender forgave the loan.

At the time of forgiveness the term of the loan had not expired and the Debtor was not due to repay any amount in respect of the loan.

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

Subsection 245-15(1) of Schedule 2C to the ITAA defines a debt for the purposes of Schedule 2C as: Subject to this section, a "debt" is an enforceable obligation imposed by law to pay an amount to another person.

Subsection 245-245(1) of Schedule 2C to the ITAA defines "pay" as including repay.

Whilst the Lender could not legally force the Debtor to repay any part of the loan at the time of forgiveness, subsection 245-15(1) of Schedule 2C to the ITAA 1936 does not specify that any part of a debt must be payable or repayable as at the time of forgiveness.

A loan will constitute a debt where a Lender can legally enforce the terms of a loan should the Debtor default at any time.