Issue
Where a commercial debt results from a further drawing on an established line of credit that has previously been fully repaid, is the debt incurred when the debtor first drew on the line of credit for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. Subsection 245-260(2) of Schedule 2C to the ITAA 1936 provides that the debt is taken to have been incurred when the debtor first drew on the line of credit after it was fully repaid.
Facts
A debtor made a further drawing from an established line of credit that had previously been fully repaid.
The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
After 27 June 1996 the debt was forgiven.
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 gross forgiven amount of a debt under section 245-75 of Schedule 2C to the ITAA 1936 it is necessary to determine the notional value of the debt.
Section 245-55 of Schedule 2C to the ITAA 1936 calculates the notional value of a debt having regard to the date upon which it was incurred.
Where a debt results from a further drawing on an established line of credit and a previous drawing has not been fully repaid, subsection 245-260(1) of Schedule 2C to the ITAA 1936 provides that the debt is taken to be incurred for the purposes of applying Schedule 2C, at the time of the first drawing on the line of credit.
Subsection 245-260(1) of Schedule 2C to the ITAA 1936 is modified where the line of credit has previously been fully repaid. In such a situation subsection 245-260(2) of Schedule 2C to the ITAA 1936 provides that the debt is taken to be incurred for the purposes of applying Schedule 2C, at the time of the first drawing after the line of credit was fully repaid.