Issue
Where a debtor is required to give both money and property in respect of the forgiveness of a non-moneylending debt, will the consideration for the forgiveness of the debt 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 and/or required to be paid and the market value of the property at the time of the forgiveness of the debt?
Decision
Yes, in accordance with subparagraph 245-65(1)(c)(i) of Schedule 2C to the ITAA 1936.
Facts
Debtor incurred a debt that was not 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) giving to Creditor property at its market value at the time of forgiveness; and (iii) paying other amounts of money and giving other property on future specified dates.
Reasons for Decision
Section 245-10 of Schedule 2C to the ITAA 1936 applies where the forgiveness of a commercial debt occurs after 27 June 1996.
Subparagraph 245-65(1)(c)(i) 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: (i) if the debt is not a moneylending deb t- the sum of that amount or those amounts and the market value of the property at the time of the forgiveness;...'
The consideration given by Debtor for the debt forgiveness was therefore the sum of: (i) The moneys paid or required to be paid; (ii) The market value at the time of the forgiveness of the property given; and (iii) The market value at the time of the forgiveness of the property to be given.