Commercial Debt Forgiveness - what are the record keeping requirements?

Does Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) require a debtor to keep records of a commercial debt that it has incurred?

Yes. A debtor that has incurred a commercial debt must keep records in relation to the matters outlined in subsection 245-265(1) of Schedule 2C to the ITAA 1936.

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

The debt was not a moneylending debt as defined in subsection 245-245(1) of Schedule 2C to the ITAA 1936.

Debtor and Creditor did not deal with each other at arm's length in respect of the incurring of the debt.

After 27 June 1996 Creditor forgave the debt owed by Debtor. Debtor paid consideration for the forgiveness of the debt.

In accordance with subsection 245-265(1) of Schedule 2C to the ITAA 1936, Debtor must keep any records that are necessary to enable the following matters to be readily found out: (a) the date that the debt was incurred; (b) the identity of Creditor; (c) the amount of the debt; (d) the terms of repayment of the debt; (e) Debtor's capacity at the time when the debt was incurred to pay the debt when it fell due (Note: this detail is required because the debt was not a moneylending debt and because Debtor and Creditor did not deal with each other at arm's length in respect of the incurring of the debt);

and (f) The date Creditor forgave the debt and the consideration paid by Debtor in respect of the forgiveness.

Debtor is required to maintain those records for a period of five years after forgiveness of the debt in accordance with paragraph 245-265(4)(a) of Schedule 2C to the ITAA 1936.