Issue
Where a Debtor incurs a commercial debt, in the form of a non-recourse loan, to finance the manufacture of goods and the debt is forgiven, is the notional value of the debt calculated under section 245-60 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. Subsection 245-60(1) of Schedule 2C to the ITAA 1936 provides that section 245-60 of Schedule 2C does not apply where the debt was incurred in respect of the manufacture of goods.
Facts
Debtor incurred a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
The debt was incurred in respect of the manufacture of goods.
Upon the Debtor defaulting the rights of Creditor were limited to rights in relation to goods produced, supplied or services provided by means of the property.
After 27 June 1996 there was a default in the payment of the debt and subsequently Debtor's obligation to pay the debt was forgiven.
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 notional value of a non-recourse debt is calculated under section 245-60 of Schedule 2C to the ITAA 1936.
As the debt was incurred in financing the manufacture of goods, subsection 245-60(1) of Schedule 2C to the ITAA 1936 provides that the notional value of the debt is not to be calculated under section 245-60 of Schedule 2C.
Instead the notional value of the debt is to be calculated under section 245-55 of Schedule 2C to the ITAA 1936.