Issue
Do the commercial debt forgiveness provisions contained in Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply where an enforceable obligation of an employee was waived by an employer and the waiver of the obligation constitutes a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?
Decision
No. The provisions of Schedule 2C do not apply where the waiver of the obligation constitutes a fringe benefit within the meaning of the FBTAA 1986.
Facts
An employee was loaned $1 000 by their employer in 1998. In February 2001, for commercial reasons, the employer waived the obligation for the employee to repay the loan.
The waiving of the loan constituted a debt waiver fringe benefit for the purposes of Division 3 of the Fringe Benefits Tax Assessment Act 1986.
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.
The term 'debt' is defined in subsection 245-15(1) of Schedule 2C to the ITAA 1936 as '...an enforceable obligation imposed by law on a person to pay an amount to another person'.
That definition is subject to modification by subsection 245-15(2) of Schedule 2C to the ITAA 1936 , which specifies that: If such an obligation is waived and the waiver constitutes a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986, the debt constituted by the obligation is to be disregarded for the purposes of this Division.
Therefore Schedule 2C to the ITAA 1936 has no application to the forgiveness of the loan by the employer as the relevant debt is disregarded because of the operation of subsection 245-15(2) of Schedule 2C to the ITAA 1936.