Commercial Debt Forgiveness - Moneylending debt

Is a commercial debt a moneylending debt, for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936), where the debt is a loan made in the ordinary course of business by another group company (Creditor), that carries on a business of lending money.

Yes. Subsection 245-245(1) of Schedule 2C to the ITAA 1936 provides that a debt is a moneylending debt if it is a loan made by a creditor in the ordinary course of its business of lending money.

Debtor company entered into a loan agreement with another group company, Creditor. The loan was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.

The loan was made by Creditor in the ordinary course of its business of lending money.

After 27 June 1996 the debt was forgiven by Creditor for commercial reasons under section 245-35 of Schedule 2C to the ITAA 1936.

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 calculating the consideration under section 245-65 of Schedule 2C to the ITAA 1936 it needs to be determined whether the debt was a moneylending debt.

The term moneylending debt is defined in subsection 245-245(1) of Schedule 2C to the ITAA 1936 as follows: 'moneylending debt means a debt resulting from a loan of money to the debtor made by the creditor in the ordinary course of a business of lending money carried on by the creditor.'

As the loan was made in the ordinary course of Creditor's business as a moneylender it therefore constitutes a moneylending debt for the purposes of applying Schedule 2C to the ITAA 1936 to forgiveness of the debt.

This ATO Interpretative Decision has been amended to remove references to 'Creditor' being a group financier, as this unnecessarily limits the scope of the ATO ID. Subsection 245-245 of Schedule 2C to the ITAA 1936 requires only that the creditor carries on a business of lending money.