Issue
Can paragraph 245-40(e) of the Income Tax Assessment Act 1997 (ITAA 1997) operate to cause Div245 of the ITAA1997 not to apply to a commercial debt owed by the beneficiary of a trust if the debt is forgiven by the trustee because of the relevant settlor's love and affection towards the beneficiary?
Decision
Yes. Paragraph 245-40(e) of the ITAA 1997 does not require that the trustee personally feel love and affection, only that the reason for forgiveness be natural love and affection
Facts
A beneficiary of a trust 'Debtor' incurred a debt in the form of a loan from the relevant trust.
The debt was a commercial debt for the purposes of section 245-10 of the ITAA 1997.
In November 2011 the debt was forgiven by the trustee of the relevant trust because he believed it was appropriate to do so because of the love and affection the settlor of the trust felt for the beneficiary.
Debtor was able to repay the debt at the time of forgiveness.
The trustee was a solicitor appointed by the settlor and did not personally feel love or affection for the beneficiary.
The forgiveness was not effected by a will.
Reasons for Decision
Paragraph 245-40(e) of the ITAA 1997 provides that Division 245 of the ITAA1997 does not apply where the debt is forgiven for reasons of natural love and affection.
The paragraph does not specify that Creditor, being the trustee of the trust, must personally feel love or affection towards Debtor only that the 'forgiveness is for reasons of natural love and affection'.