Commercial debt forgiveness - no consideration paid or given in respect of the forgiveness of a debt

Where no consideration is paid or given in respect of the forgiveness of a commercial debt, will the gross forgiven amount of the debt for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) be equal to the debt's notional value at the time of the forgiveness?

Yes. In accordance with subsection 245-75(1) of Schedule 2C to the ITAA 1936.

Debtor entered into an arm's length loan agreement with a financial institution (Lender) The loan constituted a commercial debt.

After 27 June 1996, for commercial reasons, Lender agreed to forgive the balance of the debt payable. No consideration was paid or given in respect of the forgiveness of the debt.

The notional value of the debt for the purposes of section 245-55 of Schedule 2C to the ITAA 1936 at the time of the forgiveness was $100 000.

Subsection 245-75(1) of Schedule 2C to the ITAA 1936 provides that: 'Subject to subsection (3), if no consideration is paid or given, or taken to be paid or given, in respect of the forgiveness of the debt, the "gross forgiven amount" of the debt is an amount equal to the notional value of the debt at the time when the debt was forgiven.'

The notional value of the debt at the time of forgiveness was an amount of $100 000 determined in accordance with section 245-55 of Schedule 2C to the ITAA 1936.

In accordance with subsection 245-75(1) of Schedule 2C to the ITAA 1936, the gross forgiven amount of the debt is therefore $100 000.