Issue
Does Schedule 2C to the Income Tax Assessment Act 1936 (ITAA 1936) apply to a debt which is owed to a trustee?
Decision
Yes. Section 245-26 of Schedule 2C to the ITAA 1936 provides that the Schedule has application where a commercial debt owed by the trustee of a trust estate is forgiven after 27 June 1996.
Facts
Prior to 27 June 1996 the trustee of a trust loaned money to the trust.
After 27 June 1996 that debt was forgiven because of the trust's inability to repay the debt.
Interest paid in respect of debt constituted an allowable deduction.
Reasons for Decision
Subsection 245-15(1) of Schedule 2C to the ITAA 1936 defines a 'debt' as an enforceable obligation imposed by law on a 'person' to pay an amount to another person.
Pursuant to section 245-26 of Schedule 2C to the ITAA 1936 that Schedule applies to a person acting in the capacity of a trustee of a trust estate in respect of the trust estate's debts.
As interest paid in respect of the debt was an allowable deduction the debt is therefore a commercial debt, as defined in section 245-25 of Schedule 2C to the ITAA 1936.
Accordingly, section 245-10 of Schedule 2C to the ITAA 1936 provides that the Schedule applies in these circumstances as there has been the forgiveness of a commercial debt after 27 June 1996.