Issue
Where subsection 245-185(1) of Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) applies, is the term 'associate' to be interpreted by reference to section 318 of the ITAA 1936?
Decision
Yes. Subsection 245-245(1) of Schedule 2C to the ITAA 1936 defines associate for the purposes of Schedule 2C by reference to section 318 of the ITAA 1936.
Facts
After 27 June 1996 Debtor was forgiven a debt.
The debt was a commercial debt for the purposes of section 245-25 of Schedule 2C to the ITAA 1936.
As a result of the forgiveness Debtor has a residual forgiven amount to be applied in the reduction of cost bases under section 245-175 of Schedule 2C to the ITAA 1936.
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.
Where a debtor has a residual forgiven amount to be applied in reduction of cost bases of assets under section 245-175 of Schedule 2C to the ITAA 1936, subsection 245-185(1) of Schedule 2C provides that: 'If a debtor's reducible assets includes investments in, or in relation to, entities that are associates of the debtor, the relevant cost bases of those investments are not subject to reduction under section 245-175 until the residual forgiven amount has been applied, to the maximum extent possible, in reduction of the relevant cost bases of reducible assets other than such investments.'
Subsection 245-245(1) of Schedule 2C to the ITAA 1936 specifies that the term associate in Schedule 2C is referable to the definition of the term in section 318 of the ITAA 1936.
Note the term associate is also used in subsection 245-35(4) of Schedule 2C to the ITAA 1936.