Issue
Where a debtor has transferred property to an associate of a creditor, as part of an arrangement with the creditor involving the forgiveness of a commercial debt, does the market value of that property form part of the consideration under section 245-65 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the forgiveness?
Decision
Yes. Section 245-70 of Schedule 2C to the ITAA 1936 provides that money or other property applied for the benefit of a creditor is to be taken into account in calculating the consideration in respect of a forgiveness of a commercial debt.
Facts
After 27 June 1996, Creditor forgave Debtor a commercial debt.
As part of the forgiveness arrangement Debtor, at the request of Creditor, transferred a parcel of shares to an entity associated with Creditor.
Reasons for Decision
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.
In determining the relevant consideration for the purposes of section 245-65 of Schedule 2C to the ITAA 1936 in respect of the forgiveness, regard is to be had to section 245-70 of Schedule 2C: (1) For the purposes of section 245-65: (a) money or property is taken to have been paid or given to a creditor if the money or property has been applied for the benefit, or in accordance with the directions, of the creditor; and (b) a debtor is taken to be required to pay money or give property to a creditor if the debtor is required to apply money or property for the benefit, or in accordance with the directions, of the creditor. (2) For the purposes of section 245-65, a reference in subsection (1) to the application of money or property for the benefit of a creditor includes, without limiting the generality of the expression, a reference to the application of money or property in the discharge, wholly or partly, of a debt due by the creditor. (3) This section does not limit the operation of section 19.
Accordingly, the market value of the property that was transferred to the associate of Creditor constitutes part of the 'consideration' in respect of the forgiveness of the relevant debt for the purposes of applying section 245-65 of Schedule 2C to the ITAA 1936.