Commercial debt forgiveness: right to enforce debt ended due to statute of limitations

Where a creditor is no longer able to sue for the recovery of an outstanding commercial debt is the debt forgiven for the purposes of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. Subsection 245-35(2) of Schedule 2C to the ITAA 1936 provides that a debt is forgiven if the period in which a creditor is entitled to sue for the recovery of the debt has ended because of the operation of a statute of limitations.

Debtor incurred a commercial debt as defined in section 245-25 of Schedule 2C to the ITAA 1936.

After 27 June 1996 Creditor ceased to be entitled to sue for the recovery of the outstanding amount of the debt due to the operation of a statute of limitations.

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.

Where a statute of limitations operates such that a Creditor is no longer entitled to sue for the recovery of a commercial debt the debt is deemed to have been forgiven under subsection 245-35(2) of the ITAA 1936 even if the Debtor still intends to pay some or all of the forgiven debt.