Issue
Where a debt incurred by a debtor company is forgiven whilst it is a member of a group of related companies and at least one of the non-debtor related companies has deductible revenue losses on hand in the forgiveness year, will the debtor company's net forgiven amount be apportioned amongst companies in the group with deductible revenue losses?
Decision
Yes. The net forgiven amount is apportioned amongst the company(s) in the group that have deductible revenue losses in accordance with section 245-230 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936).
Facts
After 27 June 1996, Debtor was forgiven a debt.
The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
The net forgiven amount of the debt was $800 000.
For the purposes of subsection 245-225(2) of Schedule 2C to the ITAA 1936 Debtor was a member of a group of related companies.
Debtor and some other members of the group of related companies had the following deductible revenue losses as defined in section 245-110 of Schedule 2C to the ITAA 1936:
Debtor $200 000
Company B $50 000
Company C $150 000
Reasons for Decision
Section 245-10 of Schedule 2C to the ITAA 1936 provides that Schedule 2C to the ITAA 1936 applies where the forgiveness of a commercial debt occurs after 27 June 1996.
Pursuant to section 245-230 of Schedule 2C to the ITAA 1936 Debtor, Company B and Company C are taken to have net forgiven amounts calculated according to the following formula in subsection 245-230(3) of Schedule 2C to the ITAA 1936: 'Company's deductible revenue losses / Total deductible revenue losses' * disregarded net forgiven amount.
Based upon the relevant facts this formula deems the companies to have the following net forgiven amounts:-
Debtor: $200 000/$400 000 x $800 000 = $400 000
Company B: $ 50 000/$400 000 x $800 000 = $100 000
Company C: $150 000/$400 000 x $800 000 = $300 000.