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Do the commercial debt forgiveness provisions contained in Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply where a company is forgiven a commercial debt after 27 June 1996?

Yes. The provisions of Schedule 2C of the ITAA 1936 applies to the forgiveness of a commercial debt owed by a company.

After 27 June 1996, a company borrowed funds from an unrelated lender. Interest payable by the company in respect of the loan was an allowable deduction.

Several months later the lender made a commercial decision to forgive, by way of a release, the loan to the company.

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

The term 'debt' is defined in subdivision 245-15(1) of Schedule 2C to the ITAA 1936 as '....an enforceable obligation imposed by the law on a person to pay an amount to another person'. The term 'person' is defined in subsection 6(1) of the ITAA 1936 as including a company. Therefore, the loan made to the company is a 'debt' for the purposes of section 245-15 of Schedule 2C to the ITAA 1936.

As interest paid by the company in respect of the loan is an allowable deduction, the debt constitutes a 'commercial debt' for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.

The release of the debt constitutes the forgiveness of a debt for the purposes of subsection 245-15(1) of Schedule 2C to the ITAA 1936.