Commercial Debt Forgiveness - what is consideration for moneylending debt

Where a debtor pays or gives both money and property in respect of the forgiveness of a moneylending debt, will the consideration for the debt forgiveness under section 245-65 of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) be equal to the sum of the amounts of money paid, the market value of the property at the time of the debt forgiveness, and the market value at the time of the debt forgiveness of the debtor's obligation to pay any further amounts or give any further property?

Yes, in accordance with subparagraph 245-65(1)(c)(ii) of Schedule 2C to the ITAA 1936.

Debtor incurred a moneylending debt as defined in subsection 245-245(1) of Schedule 2C to the ITAA 1936.

The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.

After 27 June 1996 Creditor agreed to forgive the balance of the debt owing in consideration of Debtor: (i) paying an amount of money at the time of the forgiveness; (ii) assigning to Creditor property at its market value at the time of the forgiveness; and (iii) paying future amounts of money and providing other property on specified dates.

Section 245-10 of Schedule 2C to the ITAA 1936 provides that Schedule 2C to the ITAA 1936 applies where the forgiveness of a commercial debt occurs after 27 June 1996.

Subparagraph 245-65(1)(c)(ii) of Schedule 2C to the ITAA 1936 provides that: 'Subject to subsection (2), the "consideration" in respect of the forgiveness of a debt (other than a debt to which subsection (3) or (4) applies) is:... (c) if the debtor has paid or given, or is required to pay or give, both an amount or amounts of money and property other than money as a result of, or in respect of, the forgiveness of the debt:... (ii) if the debt is a moneylending debt - the sum of the amount or amounts (if any) that the debtor has paid, the market value, at the time of the forgiveness, of the property (if any) that the debtor has given and the market value, at the time of the forgiveness, of the debtor's obligation to pay any amount or amounts or to give any property.'

Accordingly, under subparagraph 245-65(1)(c)(ii) of Schedule 2C to the ITAA 1936, the total consideration given by Debtor for the debt forgiveness was the sum of the following amounts: (i) the money paid by Debtor at the time of the forgiveness; (ii) the market value at the time of the forgiveness of the property provided; and (iii) the market value at the time of the forgiveness of Debtor's future obligations to pay money and provide property pursuant to the release.