Issue
Where a company's obligation to pay a commercial debt is extinguished because the company is liquidated does Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply?
Decision
Yes. The debt is forgiven for the purposes of subsection 245-35(1) of Schedule 2C to the ITAA 1936.
Facts
After 27 June 1996 a company's obligation to pay a debt is extinguished because of a formal release of the debt when the company is liquidated.
The debt is a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
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.
Subsection 245-35(1) of Schedule 2C to the ITAA 1936 provides that a debt is forgiven if the debtor's obligation to pay the debt is released or waived, or is otherwise extinguished. Accordingly, the debt is forgiven as the company's obligation to pay the debt is legally extinguished because of its release during liquidation.
Paragraph 245-40(a) of Schedule 2C to the ITAA 1936 does not apply to disregard the relevant forgiveness because the liquidation of a company does not occur under an Act related to bankruptcy.