Issue
Where a commercial debt is acquired by an associate of the debtor ('new creditor') in the ordinary course of trading on a securities market, is the debt forgiven for the purposes of subsection 245-35(4) of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. Subsection 245-35(4) of Schedule 2C to the ITAA 1936 does not apply as the debt was acquired by the new creditor in the ordinary course of trading on a securities market.
Facts
After 27 June 1996 a creditor sold a debt security to another person ('new creditor') in the ordinary course of trading on the Australian Stock Exchange (ASX). The new creditor is an associate of the debtor.
The debt security 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(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:
Paragraph 245-35(4)(a) of Schedule 2C to the ITAA 1936 applies as the sale of the debt security to the new creditor on the Australian Stock Exchange (ASX) constitutes the assignment of the right to receive payment to another person.
Paragraph 245-35(4)(b) of Schedule 2C to the ITAA 1936 applies as the new creditor is an associate of the debtor.
Subsection 245-35(6) of Schedule 2C to the ITAA 1936 defines securities market as: 'means a market, exchange or other place on which, or a facility by means of which, offers to sell, buy or exchange securities (within the meaning of Division 16E of Part III) are made or accepted'.
The sale of the debt security on the ASX is trading on a securities market for the purposes of applying paragraph 245-35(4)(c) of Schedule 2C to the ITAA 1936.
As the debt security was sold in the ordinary course of trading on a securities market, the debt is not forgiven under subsection 245-35(4) of Schedule 2C to the ITAA 1936.