Commercial debt forgiveness: assignment of a debt to an entity associated with the debtor

Do the Commercial Debt Forgiveness provisions in Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply where a creditor assigns the right to receive payment of a commercial debt to an entity that is associated with the debtor?

Yes. The Commercial Debt Forgiveness provisions in Schedule 2C to ITAA 1936 apply when a creditor assigns the right to receive payment of a commercial debt to an entity that is associated with the debtor.

The original creditor assigned the right the payment of an outstanding commercial debt to an entity associated with the debtor.

The assignment of the right to receive payment of the outstanding commercial debt occurred after 27 June 1996.

Subsection 245-35(4) of Schedule 2C to the ITAA 1936 defines 'Debt parking'.

The assignee of the debt is referred to as the 'new creditor'.

Paragraph 245-35(4)(b) of Schedule 2C to the ITAA 1936 provides that where the 'new creditor' is an associate of the debtor, then paragraph 245-35(4)(d) of Schedule 2C has affect as if: '(d) the debtor had, at the time of the assignment, been forgiven a debt (the notional debt ) equal to the amount of the assigned debt; and'

Further, paragraph 245-35(4)(d) of Schedule 2C to the ITAA 1936 provides that the debt is taken to be forgiven at the time the debt is assigned.

Paragraph 245-35(4)(e) of Schedule 2C to the ITAA 1936 provides that Schedule 2C to the ITAA 1936 has effect as if: '(e) the net forgiven amount of the notional debt were equal to the amount that would have been the net forgiven amount of the assigned debt if that debt had been forgiven instead of being assigned'

Accordingly, where a debt is assigned to a new creditor that is associated with the debtor, then the debtor will be taken to have had a debt forgiven as at the time of assignment.

The notional value of the debt that is forgiven is calculated in accordance with section 245-61 of Schedule 2C to the ITAA 1936.

The consideration in respect of the debt is ascertained under subsection 245-65(3) of Schedule 2C to the ITAA 1936.