Commercial Debt Forgiveness: Forgiveness due to creditor assignment of debt - debt parking

If a creditor assigns the right to receive payment of a commercial debt to a 'new creditor', who is an associate of the debtor, and the acquisition of this right by the new creditor is not in the ordinary course of trading on a securities market, is the debt forgiven for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. The assignment of the debt to the new creditor constitutes a forgiveness of the debt under subsection 245-35(4) of Schedule 2C to the ITAA 1936.

After 27 June 1996 a creditor assigned a debt to another person ('new creditor') who is an associate of the debtor.

The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.

The right to receive payment of the debt was not acquired by the new creditor in the ordinary course of trading on a securities market.

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

Subsection 245-35(4) of Schedule 2C to the ITAA 1936 applies: If: (a) the creditor, in relation to a debt, assigns the right to receive payment of the debt to another person (the "new creditor"); and (b) either: (i) the new creditor is an associate of the debtor; or (ii) ......; and (c) the right to receive payment of the debt was not acquired by the new creditor in the ordinary course of trading on a securities market: this Division has effect as if: (d) the debtor had, at the time of the assignment, been forgiven a debt (the "notional debt" ) equal to the amount of the assigned debt; and (e) the net forgiven amount of the notional debt were equal to the amount that would have been the net forgiven amount of the assigned debt if that debt had been forgiven instead of being assigned.

Accordingly, the debt assigned to the new creditor is forgiven for the purposes of Schedule 2C to the 1TAA 1936.